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Macro Economic Policy Series : Achieving Objectives With Tobacco Taxation

  • ID: 4849538
  • Report
  • September 2019
  • Region: Global
  • 54 Pages
  • Research Intelligence Unit

Policymaking is not always a black and white process. It involves making trade-offs. In such circumstances, policymakers are forced to face the harsh realities that may arise from the social and economic impact of their decisions and it’s important for them to strive to maintain pragmatism. Tobacco taxation is a case in point where the politicisation of the issues has resulted in a sub-optimal achievement of both the health and fiscal targets in the past.

The purpose of this document is to enlighten readers on the effects of the current tobacco taxation policy in Sri Lanka. It does so by carrying out comprehensive and detailed treatment of the analysis of tobacco taxation. It is important that analysis of this sort be carried out as objectively as possible. We believe that by resorting to facts and data in our commentaries, we have achieved this.

Most recently, at the Big Issue Sri Lanka Economic Forum, the researchers pointed out the need to have a coherent and sustainable excise tax policy on tobacco to meet the government’s health objectives, while maximising government revenue. In the same forum, they also showed that Sri Lanka is one of the most expensive countries to purchase cigarettes and thus, has become a hotspot for smuggling. This report is an extension to the previous report “Towards a Sustainable Policy Framework for the Tobacco Industry in Sri Lanka” where research focused on estimating the size of the market and understanding the key driving factors of the illicit tobacco trade. Using the findings, the attempts to recommend a list of policy prescriptions to curb the growth of illicit trade.

In this report, we provide insights on the impact of taxation, the growth in trade of the illicit tobacco market, the magnitude of the loss of revenue to the government, loss of business to the legitimate industry, and the threat it poses to law and order in the country.

Note: Product cover images may vary from those shown
  • Introduction
  • Tobacco Taxation and its effects
  • The Nature of the Illicit Tobacco Market
  • Factors Driving the Growth of Illicit Tobacco
  • Why Should Illicit Cigarettes Concern Sri Lanka?
  • Conclusion and Recommendations
  • Annexure
  • Bibliography

List of Tables
Table 1: Taxes applicable on the tobacco manufacturers and products -2019
Table 2: Tax revisions 2014 - 2019
Table 3: Excise tax revisions 2014- 2019
Table 4: Cigarettes product portfolio and market shares
Table 5: Share of excise, VAT, and NBT by brand – 2019
Table 6: Total tax share by cigarette brand 2018-2019
Table 7: Tax share of beedi - 2019
Table 8: Percentage of the mean annual per capita income needed to buy 100 JPGL packs -2006-2018
Table 9: Responsiveness of revenue to tax increases – 2008-2018
Table 10: Price comparison of illicit vs. legitimate tobacco products
Table 11: Calculation of the total market value of illicit tobacco - 2017
Table 12: Calculation of the total market value of illicit tobacco - 2018
Table 13: Calculation of the total market value and share of illicit cigarettes - 2019
Table 14: Summary of illicit shares overtime 1995-2019
Table 15: Excise duties in selected European countries-2019
Table 16: Cigarettes: Illicit market share – 2005-2018
Table 17: Illicit market share in Pakistan 2010-2018
Table 18: Calculation of the revenue loss to the government from illicit cigarettes -2019
Table 19: Usage of different types of tobacco products/brands among the sample (all-island)
Table 20: Estimation of the size of the illicit tobacco market- calculation steps

List of Figures
Figure 1: Beedi & Cigarette Consumption Historical Trends - 2007-2018
Figure 2: Number of Jobs Created by the Tobacco Industry - 2018
Figure 3: Price of a Stick of Gold Leaf - 2007-2019
Figure 4: Price of a 20 stick pack of the most sold brand in international dollars - 2018
Figure 5: Cross country comparison: GDP vs price of the most sold cigarette brand
Figure 6: Price and consumption of beedi 2007-2019
Figure 7: Growth of inflation vs. cigarette prices- 2009-2018
Figure 8: Government revenue overview - 2018
Figure 9: Relative Share of tax contributions by sectors - 2007-2018
Figure 10: Government revenue from tobacco taxation
Figure 11: Share of VAT and excise duty as a percentage of the total tax revenue – 2009-2018
Figure 12: Tax burden of cigarettes by income group – 2019
Figure 13: Illicit cigarettes sold via an online trading platform
Figure 14: Seizure of smuggled cigarettes
Figure 15: Illicit Cigarette Market Share by Country - 2012
Figure 16: RPI Avg. price - Cigarettes 20 king-size filter – 2009-2018
Figure 17: Retail prices for cigarettes 2001-2017
Figure 18: Consumption of non-duty paid cigarettes as a % of the total, 2005 – 2016
Figure 19: Tax receipts from duties on FMC and FCT, 2002 – 2017
Figure 20: Evolution of tobacco tax in Germany from 2002 to 2017
Figure 21: Cigarette smuggling vs. cigarette excise tax rates - 2015
Figure 23: Illicit prevalence (All island)
Figure 24: Places at which illicit is mostly heard/seen/consumed (all-island)
Figure 25: Illicit usage by district
Figure 26: Purchase/consumption of illicit
Figure 27: Frequency of illicit tobacco consumption
Figure 28: Frequency of illicit usage
Figure 29: Reasons for consuming illicit cigarettes
Figure 30: Trends in cigarettes consumption in recent years
Figure 31: Trends in beedi consumption in recent years
Figure 32: Methodology

Note: Product cover images may vary from those shown