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Friday January 27th, 2023

Sri Lanka illegal cigarettes, beedi switching claims likely exaggerated: researcher

ECONOMYNEXT – Sri Lanka’s market for illegal and smuggled cigarettes, a consequence of excessive-high taxation and import duties legal products, may be lower than claimed by the tobacco industry due to questionable methodology used to come up with estimates, a researcher has warned.

In foreign countries, anti-tobacco activists have shown that cigarette firms have used questionable tactics and methologies in their research studies to over-estimate illegal markets in a bid to stampede policy makers.

Standard Strategy

“The Tobacco Control Research Group at the University of Bath, UK has shown how tobacco companies exaggerate the extent of illicit tobacco by commissioning studies whose methodology and validity are unclear and misquoting data in the media,” Harini Weerasekera, a Research Officer at the Institute of Policy Studies of Sri Lanka wrote.

“A 2019 study conducted in Colombia found that the tobacco industry’s estimate of the illicit cigarette market is significantly exaggerated at 18% when illicit cigarettes represented only 6.4% of total cigarette consumption in 2017.”

“The story is not too different here in Sri Lanka. Various aspects of illicit tobacco trade are highlighted in local media, quoting vague sources and misrepresented official statistics.”

A 2017 study of disposed cigarette packs and butts found that 15 percent of butts and 10 percent of packs came from the illicit market.

“However, both estimates are questionable,” Weerasekera said. “The study relied on tobacco company expertise to distinguish formal butts from illicit butts.

“Further, the packs for the study were collected in high tourist density districts, potentially creating an upward bias in the results. As such, the estimate of Rs. 80 billion loss in tax revenue to the government arrived at by this study based on the abovementioned figures is unreliable.”

A regular survey by the Alcohol and Drug Information center, an anti-tobacco activist group had found that beedi, a type of rude cigarette made with tobacco rolled in a leaf has declined over time, she said.

The ADIC SPOT Survey had shown that as a percentage of current smokers, the share of beedi users has declined from 11 percent in 2013 to 5.4 percent in 2017.

De-Glamorize vs Coercion

Unlike other anti-tobacco activists who use the force of a coercive state to push up taxes, violating the most basic principle of taxation established over millennia in South Asian civilizations, to indulge in social engineering ADIC also uses non-coercive tactics worthy of a free society, a volunteer familiar with the work of the agency said.

ADIC has done effective grassroots activism, to de-glamorize tobacco smoking in the best free society tradition (cigarette biwwuma gandayi – you smell bad after smoking cigarettes) as well as multiple programs effectively turning youth and school children away from tobacco.

ADIC has also picked holes in claims made by the tobacco industry in the past, including employment numbers.

Other activists abroad have also pointed to erectile dysfunction as a reason to stop smoking.

Pre-Budget Stories

Meanwhile Weerasekera pointed out that stories about beedi consumption tend to spike before budgets.

“A study of Google search engine trends suggest that there were spikes (red circles) in the search term ‘beedi’ in the months preceding budget speeches(orange circles) in 2014, 2016, and 2019 (2015 had an interim budget and the 2018 budget reading was pushed to March 2019),” she said.

“This might suggest that stories are being placed intentionally, to sway policymakers away from tax hikes on cigarettes in upcoming budgets.”

However, in recent years Sri Lanka has jacked up import taxes of beedi-rolling leaf steeply, triggering another illegal industry in leaf smuggling, making it less easy to estimate domestic production compared to before.

There is anecdotal evidence however that a switch is taking place to beedi, among construction workers, day labourers and even among those in formal employment such as security guards, though there is no independent research to show the extent of the switch.

Beedi and the cheapest cigarette brands do not have a filter.

“I think I stopped smoking cigarettes about three years ago,” Aruna, a security guard said. “I can buy a mitiya (20 sticks) of beedi for 120 rupees. It is three for 20 rupees. A Gold Leaf I think is more than 60 rupees. I think it is the cheaper one as well, I do not remember. I don’t buy it anymore.

“Very occasionally I buy a Capstan (the cheapest legal cigarette brand).”

There is also anecdotal to suggest that among higher income brackets and a certain social strata, cigarette consumption falls with higher taxes as beedi is not considered hip. Whether they go for alternative recreation is not known.

The cost of a person smoking 10 premium brand cigarettes a day is now about 650 rupees.

The Ceylon Tobacco Company itself has seen long term decline in sales amid marketing and advertising restrictions, de-glamorization activities by activists, education about health effects, as well as tax hikes.

A Defective Product

Critics consider cigarettes to be a defective product, where nicotine the active ingredient, is delivered along with a number of carcinogenic chemicals. Smoking is also shown to cause circulatory and lung diseases.

There is no known ‘safe level’ of consumption of cigarettes and along with arms is among two products that can kill the consumer even if used as directed by the manufacturer.

Nicotine is also a highly addictive substance, which tends to reduce free choice.

Slippery Slope of the Threat of Violence

However replacing reason and advocacy, with coercive taxation to achieve the vicarious objectives of interventionist third parties, is a slippery slope, critics have warned.

Unreasonable taxes, whether import duties or domestic provide incentives for social degeneration and disrespect for the law.

Already taxation, which is being enforced by the threat of violence of the state is being mis-used by oriented groups of interventionists on sugar consumers, despite the patently obvious that all interventionist taxes give results by working on the least affluent in society.

Fat is likely to be the next target of interventionists.

The mis-use of taxes to cause pain to consumer, whether on imports or domestic goods is that it de-sensitizes the society to the use of threat of violence and brutality of the state, liberal philosophers who saw it happen in other countries have warned.

Economist and philosopher Ludwig von Mises has said that the interventionism of Socialpolitic, in late 19th century Germany (and later the Marxist-socialist Weimar Republic) which he called estatism, laid a foundation for Germany society to enact discriminatory interventionist policies against minorities.

“Governments are never liberal from inclination,” von Mises pointed out. “It is in the nature of the men handling the apparatus of compulsion and coercion to overrate its power to work, and to strive at subduing all spheres of human life to its immediate influence.

“Etatism is the occupational disease of rulers, warriors, and civil servants. Governments become liberal only when forced to by the citizens.” (Colombo/Oct16/2019-sb)

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Sri Lanka shares fall at market close on profit taking

ECONOMYNEXT – Sri Lanka shares fell on Thursday as profit taking entered the market mainly on financial and diversified sectors, brokers said.

The main All Share Price Index (ASPI) fell 0.13 percent or 11.50 points to close at 8,926.56.

“The market was trading on dull trade mainly due to profit taking,” an analyst said.

“Also we saw investors taking a sideline as quarterly reports started to come”.

The earnings in the first quarter of 2023 are expected to be negative with revised up taxes and an imminent electricity tariff hike.

Earnings in the second quarter are expected to be more positive with the anticipation of IMF loan and possible reduction in the market interest rates as the tax revenue has started to generate funds.

The central bank’s policy decision was expected and investors have been eying on IMF deal with hopes of rapid economic recovery from the current unprecedented economic crisis, however since the market gained in the last sessions profit taking has come about, analysts said.

The market has been on a rising trend on the hopes of a faster IMF deal. However, the central bank government said the IMF deal is likely in the quarter or in the first month of the second quarter.

The most liquid index S&P SL20 fell  0.33 percent or 9.21 points to 2,798.

LOLC had seen some attention by investors as the firm disposed 90,256,750 shares held with Agstar PLC at 15-17.50 rupees a share.

The market witnessed a turnover of 1.2 billion rupees, lower than the month’s daily average of 1.9 billion rupees.

Expolanka dragging the market down closed 2.36 percent down at 186.7 rupees a share. Sampath bank fell 1.41 percent to close at 42 rupees a share while Royal Ceramic Lanka closed 2.59 percent dwn at 30.1 rupees a share.


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Sri Lanka bonds yields steady at close

ECONOMYNEXT – Sri Lanka bond yields were steady at close on Thursday, dealers said, while a guidance peg for interbank transactions by the Central Bank remained steady.

A bond maturing on 01.05.2024 closed at 31.00/20 percent unchanged from the last close.

A bond maturing on 15.05.2026 closed at 26.60/90 percent, up from 28.50/70 percent on Wednesday.

A bond maturing on 15.09.2027 closed at 28.60/85 percent, up from 28.50/60 percent at the last close.

The three months bill closed at 29.75/30.25 percent unchanged from the last close.

The Central Bank’s guidance peg for interbank US dollar transactions appreciated by another 2 cents to 362.14 rupees against the US dollar.

Commercial banks offered dollars for telegraphic transfers at 360.49 rupees on Thursday, data showed.  (Colombo/Jan 26/2022)

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Sri Lanka central bank workers protest tax hike as governor defends painful measures

ECONOMYNEXT – Employees of Sri Lanka’s Central Bank have joined a week-long “black protest” campaign organised by state sector unions against a sharp hike in personal income tax, even as Central Bank Governor Nandalal Weerasinghe said painful measures were needed for the country to recover from its worst currency crisis in decades.

President of the Central Bank Executive Association Jayadu Perera told EconomyNext on Friday January 26 that while the protesting CBSL staff were not opposed to paying taxes, they take issue with the unprecedented increase which came into effect in the new year.

Perera claimed that the tax he paid in December had increased six-seven fold.

“This is true for most public servants, and we cannot bear this burden,” he said.

“This is a very unfair tax since it is the professionals of this country that make all the sacrifices,” he added.

Perera complained that Sri Lanka’s ruling class maintain high living standards and enjoy all the luxuries while subjecting workers like him to an “extremely unfair and unjust” tax.

Opposition to Sri Lanka’s newly increased direct taxes has been rising, with a number of unions and professional associations taking to the streets demanding that the decision is reversed.

The government, however, defends the tax hike arguing that it is strapped for cash as Sri Lanka, still far from a complete recovery, is struggling to make even the most basic payments, to say nothing of the billions needed for public sector salaries.

Economists say Sri Lanka’s bloated public service is a burden for taxpayers in the best of times, and under the present circumstances, it is getting harder and harder to pay salaries and benefits.

Defenders of the tax hike say that the road to recovery is a painful one, and Central Bank chief Weerasinghe, meanwhile, told reporters at the monthly monetary policy review on Wednesday January 25 that the country would have to take certain painful measures to come out of the crisis.

Asked about the trade union action organised by his staff – with most employees dressed in black – Weerasinghe joked that he too was in black but said in a more serious vein that at CBSL, anyone was free to exercise their democratic right to protest.

He also stressed that taxation is not under the purview of the Central Bank whose primary obligation is monetary policy.

The CBSL staff, however, continues to protest.

“This tax increase was implemented without any discussion with workers who are the victims of this policy,” claimed Perera.

Acknowledging the country’s dire financial straits, he said: “But why must only the professionals make sacrifices? Why not the politicians?”

Another worker who did not wish to be named claimed that he was left with just 10,000 rupees after tax.

“This an intolerable burden laid upon our heads. We will continue this protest until they give us relief. Today we did it during the lunch break. In the future we will do more,” he said.

Other workers who shared these sentiments told EconomyNext that most of them have debt obligations of their own and once they have settled loans, interest and other bills, a large income tax is the last straw.

“We have our own personal commitments. All we say is that taxation should be fair, transparent and equitable. Show us the rulers that are being taxed the same way,” said one CBSL worker.

Sri Lanka’s new tax regime has both its defenders and detractors. Critics who are opposed to progressive taxation said it serves as a disincentive to industry and capital which can be invested in business. They argue that a flat rate of taxation is implemented where everyone is taxed at the same rate.

Others, however, contend that the new taxes only affect some 10-12 percent of the population and, given the country’s economic situation, is necessary, if not vital.

Critics of the protesting workers argue that most of the workers earn high salaries that most ordinary people can only dream of, and though there may be some cases where breadwinners could be taxed more equitably, overall, Sri Lanka’s tax rates remain low and are not unfair. (Colombo/Jan26/2023)

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