Failure to Maintain Cigarette Tax Share Costs State Rs. 17.3 Bn Annually 📉

A recent analysis by PublicFinance.lk (Verité Research) reveals that Sri Lanka is losing an estimated Rs. 17.3 billion in annual revenue due to a decline in cigarette taxation below international benchmarks. • Overall Revenue Impact: Restoring the tax share to the World Health Organisation (WHO) recommended level of 75% could generate an additional Rs. 17.3 billion annually for the Government. This foregone revenue is equivalent to 1.2 times the Disaster Management Ministry’s budget and 2.4 times the cost of national maternity leave benefits. • Tax Share Decline: While overall national taxes (VAT and income taxes) surged post-2022 crisis, the effective tax share on cigarette retail prices dropped from 74% in 2018 to 66.8% in 2026—marking an average decline of 7.2 percentage points between 2021 and 2026. • The Excise Duty Loophole: The decline occurs because cigarette excise duties are fixed rupee amounts rather than percentages. When manufacturers raise retail prices, the tax share automatically shrinks unless the government actively adjusts the excise duty. • Policy Solution: The report notes that correcting this does not require new parliamentary legislation. The Finance Minister can immediately adjust excise duties via a Gazette Notification to align with inflation, boosting state revenue and supporting public health goals.