The Sri Lanka Medical Association (SLMA), the oldest national professional organisation of medical professionals in Australasia, has written to Prime Minister Ranil Wickremesinghe urging him to go by the guidelines of World Bank (WB) and World Health Organization (WHO) when determining taxation for tobacco and alcohol.

 

While commending the efforts made by the prime minister to mitigate the damage done by the ongoing economic crisis, the SLMA has requested him to increase taxation of tobacco products using a technically sound formula that will align the taxation to inflation and review the current alcohol taxation policy and take immediate steps to increase taxation. 

 

The letter signed by SLMA President Professor (Dr) Samath D. Dharmaratne and Chairperson of its Expert Committee on Tobacco, Alcohol and Illicit Drugs, Professor (Dr) Narada Warnasuriya, reminds the prime minister of the WHO and UNDP and WHO calculations in 2016 which found that Sri Lanka incurred an economic loss of Rs. 214 billion even in 2016 while the studies by National Authority on Tobacco and Alcohol, WHO and the SLMA revealed that estimated economic losses of alcohol to be Rs. 120 billion in 2015.

 

 

Hon. Ranil Wickremesinghe

Prime Minister and Minister of Finance

Re: Taxing tobacco and alcohol products

 

The SLMA wishes to place on record its appreciation of the current efforts to mitigate the unprecedented economic crisis in the country. As you would agree, both tobacco and alcohol cause enormous social, health and economic harms to Sri Lanka. The UNDP and WHO estimated that tobacco caused an economic loss of Rs. 214 billion in 2016, while the National Authority on Tobacco and Alcohol, WHO and the SLMA conducted a study using a very conservative methodology that estimated economic losses of alcohol to be Rs. 120 billion in 2015.

 

Taxation analyses undertaken by the National Authority on Tobacco and Alcohol as well as reputed research agencies such as the Institute of Policy Studies and Verite Research have shown the affordability of cigarettes (the number of cigarettes that can be purchased using per-capita GDP) has increased steadily over many years, while the percentage of tax derived from these products by the government has eroded due to unscientific and ad-hoc taxation policies.

 

This is contrary to recommendations of agencies such as the World Bank and WHO, that urge governments to regularly increase taxes to sustainably reduce the affordability of cigarettes which will increase government revenue and reduce consumption and thereby the harms to the population. Therefore, there is an urgent requirement to increase taxes and an opportunity to increase government revenue.

 

In this respect, we wish to propose the following to improve the government income and reduce the outflow of foreign currency, in relation to tobacco and alcohol.

 

1. Increase taxation of tobacco products using a technically sound formula that will align the taxation to inflation and minimize their affordability. Technical recommendations in this regard have been made by the National Authority on Tobacco and Alcohol, Institute of Policy Studies and Verite Research.

 

2. Carry out an urgent review of current alcohol taxation policy and take steps to increase taxation in order to reduce its affordability as a means of increasing government revenue and decreasing its consumption and widespread harm.

 

3. Consider both tobacco and alcohol products as the non-essential products, which they are. Therefore, steps need to be taken to:

 

a. Discontinue all the duty-free concessions provided for sale of these products.

 

b. Disallow imports of alcohol and tobacco products and products related to manufacture of such products. For example, ethanol, tobacco leaf, tendu leaf, chemicals, packing material and other products to limit outflows scarce foreign currency from the county.

 

4. Remove tobacco and alcohol products that are in the basket of products that are used to track consumer price inflation to remove the effect of tax increases of these products on the inflation calculations.

 

Public opinion polls have also repeatedly shown that such tax increases are the most popular tax increases. Currently, more than 90% of Sri Lankans do not smoke and more than 80% do not use alcohol regularly.

Both alcohol and tobacco industries will use their time-tested formula for preventing such measures – lobbying individuals and publishing flawed research claiming that increasing prices will increase tobacco smuggling and increase production of illicit alcohol. As you are aware, such arguments are made without basis or facts and are only intended to mislead policy makers. You would also agree that both tobacco smuggling and production of illicit alcohol are law enforcement issues, which cannot be prevented simply by competing in price.

 

Therefore, we urge you to take on this issue as a priority national requirement that will help to mitigate the current and future negative impacts of economic crisis in Sri Lanka, which will also improve the quality of life the people of this country.