Is increase in tobacco tax incidence practical policy option in Sri Lanka?

THE recent COPF discussions sparked debate on a push to raise Sri Lanka's tax on cigarettes to be 75% of the price of the cigarette.

- BY SRI LAL SOMAWEERA

This has resurfaced policy discussions, echoing a longstanding recommendation from the World Health Organization (WHO). Their aim is clear: discourage smoking, improve public health, and boost government revenue. But is this a practical target especially in Sri Lanka's current economic and enforcement landscape?

At 67%, Sri Lanka already ranks among the highest in Asia in terms of tobacco tax incidence. Moving to 75% would make it a regional outlier surpassed only by Thailand. But as experiences across the region (and even globally) show, this metric alone doesn't guarantee success. The practicality of such a move especially within the region's economic, social, and enforcement context warrants a closer look.

Sri Lanka vs Asia: How we compare

Recent data reveals a wide variation in tobacco tax incidence across Asia. Only Thailand exceeds the WHO-recommended 75% benchmark, while much of the region especially South Asia remains far below. However, Thailand's tobacco tax revenue has seen a decline over the past 15 years, now accounting for approximately 2% of total government revenue, largely due to high taxes pushing consumers towards cheaper illegal alternatives. But these disparities reflect differing economic conditions, enforcement capabilities, and consumer behaviour.

Tax incidence vs. Tax burden: A key distinction

While Sri Lanka's tobacco tax incidence is high, it's also important to look beyond percentage figures. A low tax incidence doesn't automatically translate to a light financial burden on smokers.