Excessive taxation on liquor and cigarettes needs a review

The Government has substantially increased consumption taxes on liquor and cigarettes over the last few years. Although it might have pleased some conservatives, such extreme policy measures generate unfavourable consequences both socially and economically.

One must accept that it is impossible to prevent people from doing things they enjoy. It is unrealistic to envisage a country like Sri Lanka to be completely devoid of alcohol because there is a thriving black market for liquor even in Islamic countries like Pakistan despite alcohol being officially forbidden for Muslims. The passion of islanders for boozing was in full display during the COVID pandemic when wine stores and supermarkets were closed for months.

High taxes on spirits have created a lucrative opportunity for the moonshine trade to thrive across the country. Particularly, the consumption of kasippu – which includes Methyl Alcohol, an extremely harmful ingredient -   has become rampant among low-income earners, as legal liquor is prohibitively expensive for them. Drinking is one of the few avenues of leisure and recreation available to the underprivileged segments of the society who undergo unending adversities. For hardworking labourers, alcohol and cigarettes provide the much needed solace after their gruelling daily work routines. It has been established that moderate consumption of alcohol (not excessive) provides some health benefits.  Also, as the prices of fags are unreasonably high, the impoverished are increasingly turning into beedi which is more detrimental than cigarettes. 

The shift towards illicit liquor due to exorbitant taxes on spirits has badly affected the government revenue. Excise tax revenue from liquor declined by 2.2% to Rs. 58.2 billion in the first four months of 2023 from Rs. 59.5 billion in the same period of 2022. Further, liquor production declined by 22.6% to 12.1 million litres in the first four months of 2023 from the same period a year ago. Whatever said and done, the contribution of liquor and cigarettes to the national coffers cannot be ignored. According to Verite Research, total consumption taxes (both excise and VAT) earned from tobacco and liquor represented roughly 19% of the total tax income in 2021. The government income is further supported by the corporate income taxes paid by Ceylon Tobacco Company as well as liquor manufacturers. When the Government is hard pressed to earn as much money as possible owing to the weak state of public finances, it cannot afford to forego tax income from liquor and tobacco. 

Both liquor and tobacco are vital elements to the tourism industry, and Sri Lanka is banking on its revival for economic salvation. Indians, Russians and Chinese, who account for a large chunk of tourist arrivals, are heavy smokers, and therefore, imposing high taxes on cigarettes does not carry any merits.

It is well known that there is a close nexus between kasippu and beedi traders and local politicians. These traders fund regional politicians, police officers, and temples quite generously. Religious leaders who vociferously protest against cigarettes and legal liquor very rarely speak against kasippu and beedi consumption for reasons that are best known to themselves.

All social functions in Sri Lanka, be it weddings, parties, get-togethers, are not complete without alcohol and cigarettes. Hence, making those two commodities beyond the reach of masses, especially the working-class, at a time when the Presidential Election is just one year away is not politically correct either.

A sensible tax policy on liquor and cigarettes is required on account of the adverse socio-economic impacts associated with preference towards kasippu and beedi by the downtrodden sections in the society. Those who advocate about the negative impacts of cigarettes and alcohol in terms of health must first attempt to rescue people from extremely toxic illicit liquor and harmful tobacco substances.