Sri Lanka’s economy is at a critical juncture where urgent steps are needed to improve the country’s fiscal position. The Institute of Policy Studies of Sri Lanka (IPS) has maintained that increasing tobacco taxation has undeniable health and fiscal benefits. Among the benefits of increasing tobacco taxes are the generation of additional revenue for the government, widespread support among the public for an increase in tobacco taxation, and the reduced burden on Sri Lanka’s struggling health system. In this context, policy solutions, such as taxing tobacco which can be leveraged to boost government revenue without threatening economic growth, are essential. This blog argues that the 2023 Budget should introduce a model of indexation which automatically links tobacco taxation rises with the size of the economy and inflation. This would raise substantial additional revenue from the excise tax on cigarettes.
Beedi smoking is widespread in Sri Lanka, accounting for nearly 23% of the country’s smokers. The absence of a filter makes it an unsafe product exposing its users to nicotine, tar, and carbon monoxide. As such, this tobacco product is possibly more harmful to human health than other forms of smoking. However, beedi remains an underregulated product notwithstanding the provisions of the Tobacco Tax Act No. 8 of 1999. This blog argues that beedi taxation is a low-hanging fruit to boost government revenue and reduce the foreign exchange outflow with the added benefit of improving the health of Sri Lankans. An excise tax on beedi can benefit the economy in several ways: it would directly increase government revenue, lower beedi consumption, and decrease raw material import costs thus reducing dollar outflows. Lower beedi use would also lower smoking-related health issues, thereby reducing the government’s expenditure on health.
‘Commit to Quit’ is the theme of this year’s World No Tobacco Day marked on 31st May 2021. It provides a welcome focus on smoking cessation by advocating strong cessation policies, increasing access to cessation services, and empowering users to successfully quit the deadly habit through ‘quit and win’ initiatives. The benefits of smoking cessation go beyond the individual; most immediately and directly through reduced involuntary smoke exposure and higher disposable income for household members. It is, therefore, crucial to have effective, long-term cessation interventions. According to the latest IPS research, strengthening existing Tobacco Free Zones (TFZs) and creating new TFZs are a promising initiative to promote smoking cessation. This blog examines the effectiveness of prevailing TFZs and suggests ways to improve them so that Sri Lanka’s public healthcare can be further strengthened.
This blog, based on a forthcoming IPS publication, discusses the impact of tobacco spending on other basic needs. The findings of the study show that spending on tobacco results in households foregoing other critical expenditure.
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.