According to the World Health Organisation (WHO), a tax increase of 10 percent can reduce tobacco consumption by four percent in developed countries and by five percent in developing countries, Executive Director of ADIC, Pubudu Sumanasekara said at a conference on the ‘Increase of Taxation on Cigarettes’ last week.
“This is why tobacco taxation has been hailed as a win – win situation to a country since the consumption and harms of tobacco decrease while the government income increases” Sumanasekara said.
Taxes on cigarettes were last increased in July this year after two years. Prior to that taxes on cigarettes were increased in 2016. Failure to increase prices during this period resulted in a loss of income to the government while the profits of the tobacco company increased.
The Ceylon Tobacco Company a branch of the British American Tobacco, which holds 92 percent of Ceylon Tobacco.
Therefore, 92 percent of the profits obtained from selling cigarettes to Sri Lankans are sent out of the country. Taxes which the Tobacco Company claims to pay the Government comes from the pockets of Sri Lankans and not from any revenue generated from abroad and therefore, the net effect will be the loss of wealth of Sri Lankans to foreign countries. It is claimed by international economic agencies such as World Bank that tobacco is a net loss to an economy and that governments should take steps to control tobacco use.
“Although tobacco companies claim that increase of taxes would destroy the tobacco industry, statistics show that while the amount of taxes collected from tobacco has increased 5.3 times during the past 10 years, during the same period the tobacco company has increased the net price of cigarettes 8.7 times.
In essence, the company increases the price above the amount of the actual tax increase per cigarette which shows that there is more space for tax increase of cigarettes,” Sumanasekara said.
He also said the failure of several past Governments to optimally tax tobacco has resulted in the loss of billions of rupees to Sri Lanka which could have been obtained from British American Tobacco and the optimal taxation of tobacco is the most effective instrument a government can use to increase its income while improving the health of its citizens as tax increase reduce consumption and initiation of use of tobacco.
He said “data from the Ministry of Finance shows that past increases in taxation brought in more revenue while decreasing the consumption. Therefore, evidence on the effectiveness on this approach can be identified in Sri Lanka as well.
Although, common arguments raised against taxation of tobacco are the bogeys of increase in beedi consumption and increased cigarette smuggling, The National Authority on Tobacco and Alcohol, The Sri Lanka Medical Association, The Alcohol and Drug Information Centre and Verite Research have proved that these arguments are false. Thus,we appeal to policy makers and media personnel to realise such subtle strategic falsehoods and work towards implementing higher taxation on tobacco”.