Fairness in taxation, must for advancement: Beedis grow as cigarettes burn

By Kushlani De Silva

If Sri Lanka is serious about combatting smoking-related harm, it must get tougher on controlling the beedi industry. For decades, regulators have largely ignored what they termed a cottage industry with a dwindling consumer base consisting of low-income earners. If this were the case five years ago, things would have taken a dramatic turn within a short space of time. With cigarette prices increasing exponentially driven by taxes, large numbers of smokers have turned to beedi, which now enjoys a significant share of young smokers.

This reality is reflected amply in records published by the Sri Lanka Navy which noted Tendu leaf smuggling from India jumped 22% to 15,000 kilograms last year. The number of seizures in 2020 in contrast was a mere 5,340 kilograms. Tendu leaves are essential for the manufacture of beedi and are imported from India. It is no secret that large stocks of leaf are smuggled over the strait every year. In 2018, research published by Social Development Network pointed to a beedi market of over 2.5 billion sticks annually with over 8,000 families engaged in production, and this number has increased exponentially. A university study published in 2020 placed the number at 6 billion sticks. This is also evidenced by data published by the Sri Lanka Navy. The control of tendu leaf supply is key to controlling supply in the market.

Tendu leaves, until recently, were only subject to an import CESS under HS Code 1404. Research published by the Institute of Policy Studies (IPS) last year showed that the total tax on raw materials of beedi was just 27 cents, for a product priced between Rs. 8 -10. A cigarette in contrast costs Rs. 125 per stick, and over 80% of that cost is tax. With such colossal price disparity, it comes as no surprise that more and more smokers are choosing the cheaper option.

At long last, a tax of Rs. 2 was imposed per beedi stick this year, but there is very little evidence or hope for collection from this informal segment. As detailed by the IPS report, reflective tax on beedi offers “low-hanging fruit to boost Government revenue and reduce foreign exchange outflow with the added benefit of improving the health of Sri Lankans”. It noted that beedi smoking is widespread, and prior to the excessive tax hikes on cigarettes this year, over 23% of the country’s smokers used beedi consuming around 12 sticks daily. That in effect is 12 sticks of beedi for the price of one cigarette.

Bringing beedi under an effective excise tax umbrella is perhaps the most effective manner to achieve the above benefits, with greater emphasis on improving public health and combating youth smoking. However, authorities need to invest significant thought and effort in the collection, which is lacking. Beedis present significantly more harm to human health as opposed to cigarettes, as there is no regulation of raw materials used, production process and marketing. There is no filter and smokers directly inhale toxicants produced during the process of combustion. In addition, there is no policing of beedi sales and sticks are sold to minors with none of the prevalent controls on cigarettes. There is a gross disparity in how regulations treat the sale and manufacture of these two related products that both impact human health, perhaps one more than the other.

The study published last year points to an Indian model that showed a 10% increase in the price of beedi led to a 4% reduction in consumption amongst low-income groups. Accordingly, the tax of Rs. 2 per beedi stick in Sri Lanka could enhance Government earnings by Rs. 3.5 billion and reduce consumption by as much as 16% projected by the IPS publication.

The biggest challenge before authorities would be to administer and enforce collection, which is probably one reason behind inaction on the burgeoning beedi trade. Cigarettes in Sri Lanka are manufactured by one legal entity that is heavily regulated. Beedis on the other hand are manufactured by over 8,000 families island-wide and sold at multiple retail outlets with no accessible records whatsoever on reach. However, the longer authorities take to close this loophole the longer the country will continue to lose in terms of revenue, foreign exchange and public health. There also comes a question on the gross lack of a level playing field. With Public Health Inspectors, police and excise officials employed to ensure enforcement of cigarette sales and promotion at ground level, perhaps the answer to regulating the beedi trade also lies therein. However, this must also include effective action to thwart the large-scale smuggling of tendu leaves across the Palk Strait. The health and wealth of Sri Lankans are at stake.