Govt. projected to lose Rs.52bn as illicit fags dominate market: RIU report

An interim report by the Research Intelligence Unit (RIU) recently noted the illicit cigarette market in Sri Lanka would grow by 33 percent in 2023 to 716 million sticks, with the government losing Rs.52 billion in potential revenue this year. 
The report titled ‘Prevailing Tobacco Taxation Policy – An Upsurge in the Illicit Cigarette Market’ said the smokers have switched to cheaper illicit alternatives and beedis that are priced at Rs.8-12 per stick, with little to no contribution to government earnings.
The RIU said that when a pack of Sri Lanka’s most popular brand was sold for Rs.2,000 earlier this year, the consumers bought illicit packs of similar brand value for just Rs.1,400 in the market. 

It noted that the excise hike that came into effect on January 1, this year, played a significant role in consumer shift to illicit, when the average prices rose over 17 percent. 
With a second excise hike in July this year, Sri Lankan cigarettes extended their lead as the most expensive in the world, a welcome sign for smugglers. According to the RIU, the average market price of an illicit cigarette ranges from Rs.70 to Rs.80, compared to a legal cigarette at Rs.125. 
The impacts of the price hike and prevalence of illicit cigarettes are visible all over the market, including Colombo, Matara, Ratnapura and Anuradhapura. 

This is further evidenced in the fact that as at June 2023, the law enforcement authorities had detected nearly 400 percent more illicit cigarettes in the market in comparison to the same period last year. 
Excessive taxation of legal cigarettes over the years has resulted in an upsurge in an illicit market, undermining the achievement of both health and fiscal targets. 
As reported by the RIU, to strike a balance, the policymakers must consider the implications of excessive taxation and explore alternative approaches that simultaneously discourage smoking, protect public health and ensure sustainable revenue streams.