Hike in excise taxes on cigarettes and liquor

Two weeks ago, the Government increased excise taxes levied on cigarettes and liquor in a bid to boost Government revenue. Throughout history, Governments in Sri Lanka have continuously relied on raising tax rates on alcohol and fags to fill the coffers of the Treasury. Analysts have warned that excessive taxation on tobacco and spirits forces consumers to switch towards alternatives that are extremely harmful to the health such as beedi and moonshine varieties like kassippu.

While in the Opposition, prominent NPP politicians like K.D. Lalkantha lamented about the practice of imposing exorbitant taxes on the two products of vice by the SLFP/SLPP and UNP-led Governments. In the heading of the Daily FT news item about the latest tax hike, it was mentioned that AKD Government was no different from the past administrations, perhaps implying that the writer did not expect the NPP dispensation to follow the same approach of their predecessors.

During the Presidential Election campaign, the propagandists who are sympathetic to the NPP conveyed a rather accommodative view towards boozing and smoking. In one of their election advertisements, there was a visual of a romantic couple sipping glasses of wine, which critics alleged was in contravention of the regulations of the National Authority on Tobacco and Alcohol (NATA). A rather seemingly friendly attitude towards drinking/smoking would have enabled them to obtain the votes of partying and fun-loving youth who patronise booze and tobacco for socialisation and recreation. 

The NPP’s tacit endorsement of boozing and smoking in the election period however, diametrically differs from the JVP politics in the past. For a long time, it was known that cadres of the JVP were banned from smoking and drinking. Rohana Wijeweera’s JVP in particular was associated with abstinence and refraining from pursuing worldly pleasures. Nevertheless, those who find solace via spirits and fags would have been disappointed by the recent tax hike.

Although some justify disproportionate taxes on both liquor and tobacco from the standpoint of safeguarding the health of the general public, the empirical evidence suggests otherwise. The consistent rise in the price of cigarettes has encouraged low-income earners to move to beedis that carry greater health risks than conventional cigarettes. According to the Research Intelligence Unit’s 2023 report, the beedi industry grew from 3.01 billion sticks in 2015 to 6.51 billion in 2023. On the other hand, the cigarette market had declined considerably; with consumption having stood at 0.9 billion sticks during the first half of last year. What one needs to realise is the cigarette industry is a huge contributor to the State in terms of both direct and indirect taxes, while the beedi industry’s contribution to the Government revenue is quite negligible. 

Meanwhile, 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. There are frequent news reports of locals losing their lives and vision after consuming illicit liquor. Most of those victims are males who are breadwinners of their families and such incidents illustrate the gravity of the socioeconomic adversities associated with the growing consumption of illicit liquor products among the downtrodden and less-affluent communities in the island.

By and large, a sensible tax policy on liquor and cigarettes is required in view of the adverse socioeconomic as well as health impacts due to the rising consumption of illicit liquor and beedi among the underprivileged sections of the society. Therefore, policymakers need to revisit the present strategy of overtaxing legal spirits and cigarettes.