Govt. deprived of billions of rupees in tax revenue due to irrational taxing of tobacco, say experts


by Randima Attygalle

Over the last five years, incorrect and irrational taxing of tobacco has led to a loss of Rs. 100 billion for the Sri Lankan government. If the government was able to collect this money as tax revenue, the funds could have been invested in development projects, says Pubudu Sumanasekara, Executive Director of Alcohol and Drug Information Centre (ADIC).

He made these observations at the special seminar held last week at the Sri Lanka Medical Association (SLMA) to mark ‘World No Tobacco Day’ on May 31st.

The cost of construction of the entire Southern Highway was Rs. 100 billion, he pointed out and further cited the costs entailed by the Airport Expressway (Rs. 39 billion), Moragahakanda Project (Rs. 91 billion) and Samurdhi Fund (annually Rs. 39 billion), all under Rs. 100 billion.

In Sri Lanka, tobacco consumption is sensitive to prices and the global phenomena of 10% increase in tobacco prices leading to 5% decrease in consumption is applicable locally as well. Hence, it is rational to impose the highest possible tax on tobacco products, he said.

However, as ADIC authorities pointed out, even if such heavy taxation was imposed, ‘tobacco does not incur revenue due to the negative externality of tobacco’. The toll tobacco consumption takes on the national health budget and the national income with tobacco induced morbidity and mortality exceed the revenue tobacco generates.

While tobacco kills more than 20,000 per year in Sri Lanka, the annual healthcare expenditure is more than Rs. 89.37 billion as the National Authority on Tobacco and Alcohol (NATA) confirms.

While deaths due to non-communicable diseases (NCDs) is estimated to be around 75% of total deaths in the country, contribution to it by tobacco-induced incidents is a double whammy.

The 2019 tobacco tax increase, as ADIC’s Executive Director pointed out, was based on an irrational formula. "With the 12% increase on tobacco tax in the 2019 budget, the price of a Gold Leaf cigarette was increased by Rs. 5.33. The tobacco industry, which was not affected by this price increase, added an additional Rs. 4.65 to a stick.

Hence, the price of a Gold Leaf cigarette increased by Rs. 10 and the industry managed to make a profit of about Rs. 12 billion more per year," pointed out Sumanasekara, who went on to note that this could have been government revenue if the Ministry of Finance had adopted a rational tax policy on tobacco.

Noting that the current taxation on tobacco is ‘too late, too low and flawed’, the ADIC authority drew attention to the ‘reversed phenomenon’ of increased profits for the tobacco industry and the decrease in consumption prevalent locally.

This, as Sumanasekara further elaborated, was contradictory to the global phenomenon. "At present, the percentage of tax for the government and percentage of the company share for tobacco are almost at 50:50".

Despite multiple parties, including NATA, economists, researchers and other experts mooting a rational tax formula for tobacco, the Ministry of Finance has failed to heed their calls, Sumanasekara asserted.

He was critical of the industry for working hand-in-glove with various public and private sector organizations in producing ‘flawed research’ to influence the tax policy.

The research, as further pointed out, was often published strategically just before a budget. Dismissing the arguments furnished by both the tobacco industry and the Ministry of Finance that tobacco tax increases have led to the increase of beedi and illicit cigarette sales, Sumanasekara confirmed that there is no scientific evidence to support the claims.

True to the adage that the ‘last mile is always difficult’, achieving less than 10% of tobacco consumption from 14.5%, as it is now in the country, is going to be a formidable yet an achievable task, pointed out Chairman of NATA, Dr. Palitha Abeykoon.

Dr. Abeykoon who shared his thoughts at the SLMA event marking ‘No Tobacco Day’ said that the role of the media in this exercise cannot be underpinned. "Tobacco will cease to be a public health issue only if a country reaches less than 10% consumption milestone according to WHO standards," explained the NATA Chairman, who went on to note that NATA’s goal is to achieve this goal in another five years.

Despite Sri Lanka taking strides in fighting the tobacco menace by achieving 80% of pictorial warnings, prohibiting the imports of electronic or e-cigarettes, prohibiting the sales to those under 21, and declaring tobacco free zones around schools, the ban on the sale of single stick cigarettes is yet to be achieved, he said.

"This largely impacts those from the lower economic circles, who cannot afford a whole pack," said Dr. Abeykoon, who added that "we are one of the few countries that continue to sell lose sticks".

While strengthening the implementation of WHO Framework Convention on Tobacco Control (WHO FCTC) domestically to which Sri Lanka is a signatory, implementation of plain packaging and introduction of alternative livelihoods for tobacco farmers by 2020 remain to be realized, he noted.

Killing 57 people a day across the world and 7 million people per year, the disease burden of tobacco still remains significant. As the WHO figures confirm, around 80% of the world’s 1.1 billion smokers live in low and middle-income countries. In Sri Lanka according to NATA statistics, 29% of the smokers are males, while 5.3 % are females.

Moreover, 15.8 people use smokeless tobacco. Out of more than 4,000 chemicals found in tobacco smoke, at least 250 are known to be harmful and 50 are known to cause cancer, affirms the WHO. This year’s ‘World No Tobacco Day’ came under the banner: ‘Tobacco and Lung Health’.

(Graphic Source: ADIC)

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