Business
Why the Government Should Increase Tobacco Taxation in the Forthcoming Budget
A Win-Win Strategy:
by Harini Weerasekera
The COVID-19 pandemic has left many economies struggling to revive economic activity and boost growth. Economic stimulus packages of varying sizes, shapes and forms have been disbursed by governments around the world to keep their economies afloat. What this means is that governments of developing countries in particular, face extremely tough fiscal policy choices; in some cases, compelled to spend money that they do not necessarily have.
Sri Lanka is no exception to this. COVID-19 has pushed what was already a high spend-low revenue economy into further fiscal turmoil. IPS has stressed that getting the country’s fiscal house in order is the need of the hour, in order to effectively respond to the pandemic, on top of dealing with an already mounting debt burden.
When government finances are tight, policy solutions that can be leveraged to boost government revenue without threatening growth and which support additional pandemic-related spending in the coming years, are essential. Increasing tobacco taxation is an excellent example.
IPS Study on Tobacco Taxation
A recent study by IPS projects that government tax revenue can be boosted by LKR 37 billion by 2023, if taxes on cigarettes are streamlined and raised in line with inflation. Although the government assumed a policy stance of cutting taxes across the board when they came into power, excise taxation of sin-goods such as cigarettes is one area where it is still politically feasible to raise taxes in order to boost much needed revenue. For example, back in 2019, the government increased excise taxes on tobacco to offset an overall reduction in VAT rates on goods.
This month’s budget is therefore an opportune moment to increase tobacco taxation, which will simultaneously help raise revenue at a critical time for the country, and generate significant and positive health benefits that would flow from reducing smoking.
Why Cigarette Taxation?
Although tax rates on some types of cigarettes in Sri Lanka have been raised in recent years, the most-sold brand of cigarettes in the country remains affordable according to the World Health Organization (WHO) affordability index. Further, the tax structure for cigarettes is not streamlined, and tax policy changes have been implemented in an ad-hoc manner. What this means is that there is further space to reduce cigarette affordability by using appropriate tax policy. This will ease health costs to the government from tobacco related-illness which can then be redirected towards pandemic related health costs, whilst also securing additional tax revenue in these difficult times.
In order to do this, IPS recommends in our latest study, that the government and related institutions deploy an incremental approach to revising cigarette taxes over the next four years (2020-2023). Sri Lanka currently has a five-tier tax structure for cigarettes based on cigarette length, some of which remain affordable and accessible to the young and poor in particular. Adopting a uniform excise tax system that is periodically adjusted for changes in inflation, in line with the WHO Framework Convention for Tobacco Control (FCTC) protocol, will reduce overall affordability of all types of cigarettes.
Implementing these recommendations will result in Sri Lanka’s government revenue from cigarettes increasing by Rs 37 billion by 2023; cigarette consumption reducing from one billion sticks by 2023; and prevention of 140,000 premature deaths from cigarette consumption in the future.
Additionally, a forthcoming study by IPS finds that the net effect of tobacco control policies on national income is positive, as a result of consumers switching their spending from tobacco products to other goods and services.
A Link between Tobacco Taxation and Illicit Trade?
While industry lobbyists, the world over, are resistant to cigarette tax increases, and argue that increased taxes promote illicit tobacco trade and beedi consumption – the evidence shows otherwise. According to WHO FCTC Knowledge Hub research, there is a negative correlation between illicit trade share and cigarette prices, globally (Figure 1). Instead, it is the existence of informal trade channels, easily crossed borders, weak governance, ineffective customs/tax administration, corruption and complicity of producers/importers, among other reasons, that cause large-scale illicit trade of tobacco. Hence, illicit trade should be controlled through organizational changes in tax administration such as more investigations, more tax and customs officers, and technology, rather than by keeping cigarette taxes/prices low.
Similarly, there is concern that beedi consumption has risen due to tax increases on cigarettes. However, the Alcohol and Drug Information Centre (ADIC) trend surveys over the years have found that there is no pattern of switching from cigarettes to beedi in response to cigarette price increases. However, authorities should consider taxing beedis too; avoiding tax increases on cigarettes, on the other hand, will not aid in reducing consumption of either cigarettes or beedis.
Moreover, controlling the consumption of various tobacco products needs to be tackled using different strategies, as outlined by internationally recognized sources such as the WHO.
Business
Cost-effective clearance of goods across borders to determine worth of Customs Paperless Declaration
By Ifham Nizam
The introduction of the Customs Paperless Declaration from October 1 could mark an important step in Sri Lanka’s efforts to modernise trade, but its real value will depend on whether it reduces the time and cost of moving goods through the country’s borders, Customs House Agents & Traders Association President Mohamed Niyas said.
Niyas warned that digitising Customs declarations alone would not necessarily translate into faster cargo clearance or lower costs for businesses.
‘Expecting a dramatic improvement in clearance speed under the present conditions is like expecting Ferrari performance from a Morris Minor configuration, he said.
For importers and exporters, the issue extends well beyond paperwork. Every additional hour or day that cargo remains in the clearance chain can have wider consequences for businesses, including increased port and storage-related costs, additional working-capital requirements, uncertainty over delivery schedules and disruptions to production and distribution.
Niyas said the competitiveness of Sri Lanka’s trading sector ultimately depended on how efficiently goods could move through the country’s border-clearance system.
‘The real bottleneck is not merely the absence of paper. It is the entire clearance ecosystem—the limitations of the existing ASYCUDA World system, excessive regulatory interventions by Other
Government Agencies, multiple approvals, physical examinations, manual interventions, fragmented processes and institutional constraints, he said.
He cautioned that unless these bottlenecks were addressed, there was a risk that the paperless initiative would merely digitise existing bureaucracy.
‘If these underlying constraints remain unchanged, there is a real risk that the new paperless system could become another “copy-and-paste road show”—where an old, complex clearance process is simply transferred onto a digital screen without fundamentally changing the process itself, Niyas said.
For businesses dependent on imported raw materials, machinery, components and other inputs, clearance efficiency can directly affect the wider supply chain.
Delays at the border can create uncertainty for manufacturers, distributors and retailers, while exporters can face difficulties meeting delivery schedules when imported inputs or export consignments are held up.
Niyas therefore argued that the success of the October 1 initiative should be judged by its impact on trade flows rather than by the number of declarations processed electronically.
‘Paperless does not automatically mean faster, he said. ‘Digitising a slow process does not make the process fast. It only makes the slow process digital.’
He said Sri Lanka needed to move towards what he described as “process-less Customs”—a system in which unnecessary procedures are eliminated rather than simply converted into electronic procedures.
Among the reforms he called for are simplification of Customs declarations and approval workflows, improvements to the functionality of ASYCUDA World, greater use of risk-based inspections and better integration of Other Government Agency approvals.
Niyas also called for the elimination of repetitive document submissions and physical endorsements, greater use of pre-arrival processing, sufficient capacity for digital document uploads and clearly defined service-level timelines for Customs and OGAs.
Business
China backs Sri Lanka’s Non-aligned stance to counter regional pressures
By Sanath Nanayakkare
As global attention has fixed on the high-level diplomatic choreography at the United Nations General Assembly in New York, a subtler, yet profound geopolitical signal was sent from Colombo, yesterday.
In a major address marking the founding anniversary of the People’s Republic of China, newly appointed Chinese Ambassador Wei Huaxiang chose to anchor bilateral relations not just in modern trade or infrastructure, but in a shared respect for Sri Lanka’s legacy of non-aligned independence.
By explicitly invoking Sri Lanka’s foundational role in the 1976 Non-Aligned Summit, Beijing was doing something unexpected in an era defined by fierce great-power rivalry: it was officially validating a small island nation’s right to maintain an independent foreign policy stance.
The Strategic Value of Independence
For decades, nations caught in the crosshairs of major-power competition have faced intense pressure to pick sides. Yet, Ambassador Wei’s embrace of Colombo’s non-aligned tradition signaled a different diplomatic playbook. Instead of demanding alignment, Beijing was framing its partnership as a reliable counterbalance to regional pressures. By honouring Sri Lanka’s diplomatic autonomy, China was effectively reassuring smaller economies that sovereign independence and robust economic cooperation can coexist.
Beyond Ports and Industrial Zones
This diplomatic framing reframed the narrative surrounding major collaborative ventures like the Colombo Port City and Hambantota Port. While foreign analysts often view these projects exclusively through the lens of strategic rivalry, Beijing’s diplomatic messaging tied them back to a historical ethos of solidarity—evoking memories of the 1952 Rubber-Rice Pact.
By marrying economic projects with a stated respect for non-alignment, China is positioning itself as a steadfast stakeholder that respects Sri Lanka’s internal agency during difficult economic and political seasons.
As both nations look toward major milestones in 2027—including the 70th anniversary of diplomatic ties—this nuanced diplomatic move revealed how historic traditions are being leveraged to navigate modern multipolar realities.
For global observers, the takeaway was clear: in the shifting architecture of Asian geopolitics, respecting a nation’s historical neutrality may just be the most effective way to secure a lasting partnership, a diplomatic masterclass that Ambassador Wei Huaxiang executed in style.
Business
Sri Lanka Insurance Life appoints Dr. Sameera Dharmasena Chief Executive Officer
Sri Lanka Insurance Life (SLIC Life), the nation’s largest and strongest Life Insurer, is pleased to announce the appointment of Dr. Sameera Dharmasena as its new Chief Executive Officer, effective 22nd September 2026.
Dr. Dharmasena is a distinguished insurance professional with over 21 years of experience in the Sri Lankan insurance industry, having held senior leadership positions across several leading insurance companies affiliated with some of Sri Lanka’s largest business conglomerates. His extensive career spans both local and multinational insurance environments, bringing together broad industry expertise, strategic leadership and a strong commitment to the advancement of the insurance profession.
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