On the 10th of January, the Sri Lankan government increased excise taxes on cigarettes by 5.9%  which has once again failed to align with the country’s economic and public health objectives. The key goal of cigarette taxation—achieving the internationally recommended tax-in-price benchmark of 75%—remains unmet. Instead of increasing the government’s share of revenue, the policy has further reduced the tax-in-price for cigarettes.

Following the tax hike, the Ceylon Tobacco Company (CTC) increased retail prices by LKR 5 for the least-priced brand (LPB) and LKR 10 for the most sold brand (MSB), but the tax-in-price for the MSB dropped from 68.8% to 68.4%, while for the LPB, it fell from 70.0% to 66.1%. This stems from an increase of excise taxes only by LKR 1.08 and LKR 5.02 for LPB and MSB respectively, where the increase by CTC is much higher than the increase by the government.

This decline was primarily driven by a disproportionate increase in the net-of-tax price compared to the increase in total taxes. These developments highlight long-standing inefficiencies in Sri Lanka’s cigarette taxation policies, where the producer has consistently benefitted more than the government where the government has consistently lost revenue on a higher proportion of the cigarette price. Between 2017 and 2024, the producer’s profits surged disproportionately—net-of-tax revenue for the monopoly producer increased by 92.4%, compared to just a 27.5% rise in levies paid to the government.

Read the full insight [here].