RIUNIT pioneers policy papers on Sri Lanka’s illicit markets

RIUNIT Sri Lanka CEO Roshan Madawela presenting the latest report on illicit markets to Finance State Minister Shehan Semasinghe

Research Intelligence Unit (RIUNIT) continues its groundbreaking efforts in shedding light on critical policy matters concerning Sri Lanka’s economic landscape. Their latest series of reports highlights the significance of illicit markets that operate within and beyond the island’s borders. 
Focused on combating illicit markets and their impact on the nation’s economy, RIUNIT’s latest policy papers aim to guide sound policy decisions crucial for bridging the country’s revenue gap and fostering sustained economic development.

RIUNIT’s policy papers published in 2023 revealed a significant surge in the illicit tobacco sector, with illicit cigarette market share climbing from 16 percent in 2022 to 29 percent. Also, 62 percent of Tendu leaves used for beedi manufacturing appear to be smuggled. 
These increases in illicit trade are causing substantial revenue losses for the government. From the trade of illicit cigarettes alone, the revenue loss to the government stood at a staggering Rs.79 billion. 

Additionally, RIUNIT found a considerable gap in tax revenue generated by different tobacco products like beedi, relative to their volumes. Despite beedi holding a 67 percent market share in the total tobacco market, they only contribute around Rs.4 billion in tax revenue, representing a mere 3 percent of total tax revenue from the tobacco market. 

RIUNIT’s research indicated that the government implemented substantial increases in excise taxes on legal cigarettes in recent years, ranging from around 44-137 percent in 2023 alone. These tax hikes stretched consumer affordability and played a crucial role in causing consumers to shift towards cheaper illicit cigarettes. 
In addition, the rising cost of legal cigarettes became a strong incentive for consumers to seek more affordable options, often turning to illicit cigarettes. Furthermore, the ongoing decrease in real wages during this period significantly affected the affordability of legal cigarettes, making the illicit market even more appealing. 

Faced with economic challenges, many consumers sought more cost-effective alternatives, resulting in a noticeable increase in the consumption of illicit cigarettes.
RIUNIT’s report which centered on examining the economic and agricultural repercussions subsequent to the recent ban on the herbicide ‘glyphosate’ was also officially presented last Friday. The report broke into the impacts resulting from the restrictions imposed on both the import quantities and usage of this herbicide. 
According to RIUNIT’s estimations, roughly 1,156MTof glyphosate found their way into the island through smuggling in 2020. If these quantities were to be considered legitimate sales, the potential tax revenue for the year 2020 could have amounted to around Rs.295 million. 

Additionally, the unregulated presence of smuggled or counterfeit weedicide products in the market poses substantial threats to the environment, farmers, and food safety for consumers, warranting significant concern.
At a juncture where Sri Lanka seeks to increase tax revenue amid the pressures from IMF and the all-important need to stabilise the national economy, RIUNIT highlighted the pivotal role of tackling illicit markets to safeguard the government’s financial stability.