Cigarette price hike good for public health and state revenue

By Sarath Liyanaarachchi
With cigarette prices increased by Rs.5.00, the government has taken a progressive step towards enhancing revenue sustainability and improving public health. 

Considering the current headline inflation and market dynamics, this increase is a calculated measure that will serve the objectives of all stakeholder groups. 

Cigarette consumption is coming down annually and whilst this is a welcome measure, it also impacts revenue to the state, as the tobacco industry is a key contributor to government earnings. 

A Rs.20 hike, as previously envisaged, would have tipped the scales and seriously impacted the earnings and provided impetus to the smugglers of counterfeit products. Whilst there would be a degree of impact to sales from the Rs.5.00 increase, the government could very well recover the shortfall in domestic consumption from the growth in tourism numbers, with the COVID restrictions easing. Accordingly, despite the headline inflation at 8.3 percent last month and impacts to consumer spending, the government would likely hold on to the Rs.110 billion annual earnings from the cigarette trade. With the government budget allocation for health at Rs.153.5 billion for 2022, the cigarette industry alone would cover more than 71 percent of the state’s health costs. But reduced smoking will also lead to lessened government spending on health, over the medium term. As local consumption drops, there will be a marked increase in public health as cardiovascular disease and incidence of lung cancer should reduce drastically. This is primarily due to lack of access, due to affordability being impacted, which would impact youth segments more. 

Affordability issues will also dissuade students from experimenting with smoking, which will turn them away from smoking. This is a critical aspect of tobacco control measures and it is commendable that the government has kept up its pressure on controlling consumption through pricing. 

However, these efforts need to be complimented by measures to control smuggling and counterfeit cigarettes, as reports indicate that a large number of cigarettes are smuggled into the country annually. If the government is not careful and make room for the growth of illicit, it would inadvertently fuel a thriving black market that would compromise health, law and order and earnings to the state. Therefore, greater efforts must be made and regulations tightened to control entry of counterfeit cigarettes into the Sri Lankan market. 

The cigarette price hike after two years is a welcome and timely measure. This is the first price increase since 2019 and as alluded to before, the government has taken a deliberate and measured approach to pricing, which would compliment the consumption patterns and growth objectives of the country.