Business
Taxing Tobacco: Why the 2023 Budget Should Increase Tobacco Taxes
By an IPS Research Team
Sri Lanka’s economy is at a critical juncture where urgent steps are needed to improve the country’s fiscal position. The Institute of Policy Studies of Sri Lanka (IPS) has maintained that increasing tobacco taxation has undeniable health and fiscal benefits. In this context, policy solutions, such as taxing tobacco which can be leveraged to boost government revenue without threatening economic growth, are essential. This blog argues that the 2023 Budget should introduce a model of indexation which automatically links tobacco taxation rises with the size of the economy and inflation. This would raise substantial additional revenue from the excise tax on cigarettes.
The Right Time to Raise Taxes
The current economic crisis and the intense pressure on the health system mean there is no better time to raise tobacco taxes in Sri Lanka. Among the benefits of increasing tobacco taxes are the generation of additional revenue for the government, widespread support among the public for an increase in tobacco taxation, and the reduced burden on Sri Lanka’s struggling health system.
A tax targeting a ‘sin product’ like tobacco will contribute to the government’s ongoing efforts to help raise revenue without increasing the costs of essential goods at a critical time for the economy. According to a poll conducted by the Alcohol and Drug Information Centre (ADIC) in September 2021, 91.5% of respondents said they would support increasing tobacco taxation to boost government revenue. Accordingly, this is a tax move the government can introduce, which will have a near-universal public endorsement. Further, driving down tobacco consumption by increasing prices, particularly of the most harmful cigarettes, will reduce tobacco-caused illnesses and ease pressure on the health system when Sri Lanka’s healthcare system is facing severe medical shortages due to the economic crisis.
A Complex Tobacco Taxation System
Taxation is internationally recognised as the most cost-effective means to reduce tobacco consumption, given the revenue generated by tobacco taxation. The World Health Organization Framework Convention on Tobacco Control (WHO FCTC) recommends simple, inflation-adjusted taxes to reduce tobacco use and prevalence. In the past, in line with these global best practices, Sri Lanka has taken several positive measures to control tobacco use, including tax increases leading to significant revenue boosts for the government as public health benefits for the population.
Sri Lanka, however, has complex tobacco taxation practices in place. Cigarettes in Sri Lanka are taxed at five different excise duty rates based on the length of the cigarette. Moreover, in Sri Lanka, tobacco taxation has not kept pace with inflation and per capita income, which has made cigarettes more affordable. This has resulted in adverse health outcomes and deprived the government of considerable revenue, which could have been invested in key priorities.
Introduce a Single Tax for Cigarettes
To help mitigate the current fiscal difficulties, an ongoing IPS study recommends the introduction of a single tax for cigarettes of all lengths (along with regulation restricting the length of cigarettes to 84 mm the longest cigarette sold in the market at present), which is adjusted annually according to inflation and GDP growth of introducing a single tax for cigarettes, irrespective of their length, will make cigarettes less affordable to youth and the poor (See Figure 1 for further information). For example, if a single tax were implemented in 2021, all cigarettes would have cost at least LKR 57, reducing the affordability of all cigarettes. Thus, the formula would ensure that taxes are raised consistently and that cigarettes remain unaffordable to the most vulnerable, namely the young and the poor.
The risk of substitution to beedi is a common argument used to oppose increasing cigarette taxes. An ongoing IPS study, however, provides a counterargument through a cross-price elasticity analysis, which reveals that if cigarette prices rise, tobacco smokers are unlikely to substitute cigarettes with beedi.
Benefits of Introducing a Taxation Formula for Cigarettes
Revenue gains: IPS estimates that the government could have earned close to LKR 23.6 billion in additional excise tax revenue if a single excise tax for cigarettes of all lengths was introduced according to the formula in 2021.
Health benefits: Increasing taxes is the most effective way to reduce tobacco consumption. This will help to reduce adverse health outcomes of smoking, ease pressures on the health system, lower health costs associated with tobacco use, and reduce the unfavourable effects on household incomes from tobacco consumption. IPS estimates that had a single tax for all cigarettes had been in place since 2018, the number of cigarettes sold would have fallen by almost 157 million sticks. Further, the current price is highly affordable and could incentivise the youth to start smoking, leading to additional burdens on the health system. As such, introducing regulations to restrict the length of cigarettes to 84 mm would ensure cigarettes remain unaffordable.
Public support: A tax increase targeting a ‘sin product’ helps to generate revenue without increasing the costs of essential goods. As such, this tax increase is likely to be widely supported by the public.
Way Forward
Given the current economic crisis and considering that cigarette taxes have not been revised systematically over time, the government could use this opportunity to introduce a simple formula to raise taxes to attain the twin benefits of improved health and fiscal outcomes.
Link to original blog: https://www.ips.lk/talkingeconomics/2022/11/10/taxing-tobacco-why-the-2023-budget-should-increase-tobacco-taxes/
Business
Priority areas for deepening Japan-SL economic ties
Japan Business Council (SLJBC) of The Ceylon Chamber of Commerce recently held its 47th AGM, with the Ambassador of Japan and the Patron of the Council, Akio ISOMATA, attending as the Chief Guest.
Addressing the gathering, Ambassador ISOMATA outlined three priorities for deepening bilateral economic relations: an effective and forward-looking trade and investment policy, the promotion of domestic industrial policy, and expanded investment in renewable energy. He noted that Sri Lanka’s ongoing review of its Free Trade Agreement policy would be important in shaping the country’s future negotiating landscape. He encouraged Sri Lanka to look Eastward toward Southeast Asia and Japan, proposing that the country adopt an export-oriented industrial model. The Ambassador welcomed the Government’s National Export Development Plan 2026 and National Mineral Policy 2026 as consistent with Japan’s vision of connecting Sri Lanka’s export-related manufacturing sectors with India’s high-growth manufacturing base.
In his address, President Athulla R F Edirisinghe reflected on nearly seven decades of humanitarian and development support extended by Japan to Sri Lanka, and paid tribute to the Chairman of the Sasakawa Peace Foundation Yohei Sasakawa, for his magnanimity in establishing the Foundation. Reflecting on the history of Japanese investment in the region from the 1970s onward, he observed that Sri Lanka had missed many opportunities to attract Japanese foreign direct investment. Highlighting the 2025 proposal for a Sri Lanka – Japan Economic Corridor by the Ministry of Economy, Trade, and Industry Japan, he called on Sri Lankan businesses, industry associations, and the wider community to come together in dialogue with the Government to ensure the country does not miss this opportunity as well.
2026/27 Committee: President: Athulla R F Edirisinghe – Director, Hirohama Ceylon (Pvt) Ltd, Senior Vice President – Ruwan Waidyaratne – Managing Director, Hayleys Advantis Ltd, Vice – President – Shamil Mendis – Managing Director, Spear International (Pvt) Ltd, Treasurer – Rohitha Mendis – Managing Director of Prudential Shipping Lines (Pte) Ltd, Immediate Past President – Mahen Kariyawasan – Managing Director, Andrew The Travel Company (Pvt) Ltd, representatives from Amano Lanka Engineering (Pvt) Ltd, BOV Capital (Pvt) Ltd, Brandix Apparel (Pvt) Ltd, Heritage Teas (Pvt) Ltd, Kalhari Enterprises (Pvt) Ltd, Lanka Harness (Pvt) Ltd, Dentsu Grant (Pvt) Ltd, MAC Holdings (Pvt) Ltd, and Vidullanka PLC. By invitation: HVA Foods PLC (subsidiary of George Steuart & Co), Spillburg Holdings (Pvt) Ltd, and Vaughan Chemicals (Pvt) Ltd.
The Sri Lanka – Japan Business Council plays an important role in promoting trade, tourism, and investments between Japan and Sri Lanka. For membership inquiries contact Kiyara at The Ceylon Chamber of Commerce via E-mail: businesscouncils1@chamber.lk or Tel.: 011 5588875/ 5588800.
Business
Rekawa turns turtle conservation into a 30-year community business model
By Ifham Nizam
What started 30 years ago as an effort to protect sea turtles has evolved into a community-based economic model that has generated livelihoods, attracted tourists and transformed Rekawa into one of Sri Lanka’s best-known nature tourism destinations.
The Rekawa Turtle Conservation Project, launched on September 2, 1996, by the Turtle Conservation Project (TCP) in partnership with the Department of Wildlife Conservation and the Rekawa community, marked its 30th anniversary last week, demonstrating how biodiversity protection can become an economic opportunity for communities living alongside sensitive natural resources.
Speaking at the anniversary celebrations, TCP chairman Thushan Kapurusinghe said the project currently provides direct livelihoods for 28 people, but its economic impact extends considerably beyond those directly employed by the programme.
‘Today, 28 people directly earn their livelihood through this project. But its impact goes far beyond those 28 individuals, Kapurusinghe said.
He pointed to the transformation of the area over the past three decades, arguing that the growth of tourism in the community has been closely linked to the turtle conservation programme.
‘If you travel from Netolpitiya to this area, you can clearly see how much the village has transformed over the years. There is no doubt that the growth of tourism in this community has been driven by the Turtle Conservation Project, he said.
The economic significance of Rekawa lies in its ability to convert the protection of a natural asset into a source of recurring community income.
Tourists do not come to Rekawa merely to see a beach. They come to witness sea turtles emerging from the ocean and nesting in their natural habitat—a tourism experience that depends directly on the continued protection of the nesting beach.
Kapurusinghe said tour operators regularly bring visitors to Rekawa, with some tourists traveling there after visiting major attractions such as the Kandy Esala Perahera.
The model represents a fundamental shift from viewing conservation as an expense to recognising biodiversity as an economic asset that can generate sustainable livelihoods when properly managed.
The 30th anniversary celebration at the Rekawa Turtle Conservation Project Information Centre brought together Southern Wildlife Region Director of the Department of Wildlife Conservation Channa Suraweera, government officials, conservation organisations, community representatives and long-standing supporters of the initiative.
Individuals who had contributed to the project over the past three decades were also recognised with awards for their service to sea turtle and environmental conservation.
Rekawa’s experience has attracted international attention because of precisely this combination of conservation and community development. The project has received international recognition as well as the Green Employment Award from the Ministry of Environment and Natural Resources. Earlier international recognition included a highly commended ‘Tourism for Tomorrow’ award, while the project’s turtle-watch programme subsequently received further recognition in responsible tourism and conservation.
Business
Ceylinco Life brings premium policyholders closer to the magic of the Kandy Perahera
For an evening, the timeless spectacle of the Kandy Esala Perahera unfolded at especially close quarters for a select group of Ceylinco Life’s most valued policyholders and their families, who were hosted to an exclusive viewing experience by the Company’s Customer Relations Division.
Held at the Ceylinco Life Kandy Branch on Kings Street, the annual event coincided with the second Randoli Perahera, bringing guests into the heart of one of Sri Lanka’s most spectacular expressions of culture, tradition and pageantry.
As the procession made its majestic passage through the streets of Kandy, guests enjoyed VIP seating at a prime vantage point, allowing them to experience the colour, movement and grandeur of the Perahera up close. The evening offered a fitting setting for Ceylinco Life to celebrate its enduring relationships with its premium clientele.
The experience extended well beyond the spectacle outside. Guests were welcomed with evening refreshments and an exclusive dinner buffet presented by the prestigious Amaya Hills Resort, adding a fine-dining dimension to an already memorable evening.
Families, too, were at the centre of the occasion. A private movie theatre experience provided entertainment for children and adults alike, while each attending family received a beautifully framed family photograph as a personalised souvenir, a tangible reminder of an evening shared together against the backdrop of one of Sri Lanka’s most treasured cultural traditions.
Besides being a much sought-after opportunity to watch the Perahera, the occasion was an expression of appreciation. Through its continuing Customer Relationship Management activities, Ceylinco Life seeks to create experiences that recognise its most valued policyholders not simply as customers, but as relationships to be celebrated and nurtured. And on this particular August evening, the enduring splendour of the Kandy Perahera provided the perfect setting for doing just that.
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