At a juncture when government finances are tight, policy solutions such as taxing tobacco which can be leveraged to boost government revenue, without threatening economic growth, are essential. However, Sri Lanka’s 2021 Budget does not specify any tax increases on cigarettes. Instead, it proposes a simplification of taxes across a variety of sin goods and other goods. Details on how such a complex proposal is to be implemented across an array of industries are yet to be revealed. This blog dissects some of these issues pertaining to cigarette tax proposals in Budget 2021.
A recent study by IPS projects that government tax revenue can be boosted by LKR 37 billion by 2023, if taxes on cigarettes are streamlined and raised in line with inflation. Although the government assumed a policy stance of cutting taxes across the board when they came into power, excise taxation of sin-goods such as cigarettes is one area where it is still politically feasible to raise taxes in order to boost much needed revenue. This month’s budget is therefore an opportune moment to increase tobacco taxation, which will simultaneously help raise revenue at a critical time for the country, and generate significant and positive health benefits that would flow from reducing smoking.
The Sri Lankan economy is likely to face a contraction in 2020 as a direct result of the COVID-19 pandemic but there is potential for this to be followed by a sharp V-shaped economic recovery. The means of navigating such a recovery path were discussed at a webinar panel discussion held last Thursday (15th October) to mark the release of the Institute of Policy Studies of Sri Lanka’s (IPS) flagship report ‘Sri Lanka: State of the Economy 2020’.
In the run up to elections, Sri Lanka is once again witnessing various news activities highlighting how the government is losing revenue due to increased consumption of illicit cigarettes and beedi. However, the wider government policy on tobacco control is aimed to reduce smoking rates and the related direct and indirect costs – which was estimated to amount to 6% of government revenue in 2015 – through taxation. This blog argues that although controlling the availability of illegal cigarettes in the market is important, this should be done through regulation so that both legal and illegal cigarette consumption remains low in the country.
The primary issue that arose at the plenary on ‘Promoting Innovation and Disruption in the Fourth Industrial Revolution (4IR)’, at the 12th South Asia Economic Summit (SAES XII), organised by the IPS, was the role of disruption in the status quo. The panel deliberated on whether governments and corporations should embrace and utilise disruption despite its drawbacks, or regulate extensively to curb it.