Latest tax hike yields Rs. 7 bn profit windfall for tobacco companies

Deaths caused by alcohol and smoking annually in SL number 15,000 and 20,000 respectively

By Sujeewa Thathsara

The recent increase in cigarette taxes will generate an additional profit of approximately Rs. 7 billion for cigarette companies, according to the Alcohol & Drug Information Centre (ADIC).

While the tax on the most popular cigarette category rose by Rs. 4.51 per stick, the retail price has surged by Rs. 10 per cigarette, enabling companies to pocket significant profits.

ADIC has attributed the profit windfall to the lack of a robust system for efficient tax collection. It has noted that regardless of which government is in power, tobacco and alcohol companies have consistently managed to secure substantial financial gains.

AIDIC has further pointed out that alcohol consumption is responsible for around 15,000 premature deaths annually in Sri Lanka, while smoking accounts for nearly 20,000 fatalities each year.

In 2023, a 20% increase in alcohol taxes led to a reduction in alcohol consumption by 8.3 million litres while boosting government excise revenue from alcohol by Rs. 11.6 billion. Similarly, despite a decline in cigarette sales, excise revenue therefrom rose by Rs. 7.7 billion.

Sampath de Seram, Executive Director of ADIC, has said those figures underscore the impact of taxation on consumption patterns and government revenue.