When tax policy backfires: Call for more calculated policy approach

OVER the first half of 2025 alone, authorities in Sri Lanka have intercepted more than 115 million illegal cigarettes at entry points across the country.

- BY KUMAR RANAWEERA

In one bold attempt, traffickers tried to sneak 2,000 cartons worth over Rs. 60 million through the green channel at the airport. These are not isolated incidents they are symptoms of a broader policy failure.

The recently published Annual Report of Ceylon Tobacco Company PLC estimates that 1.2 billion cigarettes were smuggled into the island last year, costing the Government over Rs. 110 billion in lost revenue. Legal cigarette sales, once the backbone of excise collection, has shrunk to a mere 1.9 billion sticks, making up just 20% of the total tobacco industry in the country. These are not just numbers they're red flags waving at the very heart of our economic and enforcement systems.

What happened?

In the span of just seven years, the retail prices of legitimate cigarettes rose to Rs. 70 per stick. That is not due to inflation, instead it was policy gone unchecked. As the Government continued to push taxes upward, the price elasticity of demand - the basic principle that consumers buy less when prices rise began to stretch beyond its limits.