Sri Lanka legal cigarette sales plunge 29-pct; tax revenues up

ECONOMYNEXT – Sri Lanka’s legal cigarette sales fell 29 percent in the March 2017 quarter from a year earlier, Ceylon Tobacco Company Plc said amid indirect evidence of an active smuggling after a tax hikes last year.

Sri Lanka upped excise taxes and re-introduced value-added tax on cigarettes in the last quarter of 2016, which some analysts considered too sharp a hike of taxes on smokers.

In Sri Lanka, interventionists consider smokers and alcohol consumers fair game for excessive taxation, treating them as ‘sinners’ or second-class citizens.

Gross revenues went up marginally to 30.8 billion rupees in the quarter from 29.5 billion rupees a year earlier, due to the price increase.

Total turnover tax collections went up to 23.8 billion rupees in the March 2017 quarter from 22.17 billion rupees a year earlier, despite plunging sales.

Excise tax fell from 22.1 billion rupees to 19.7 billion rupees, but value-added tax brought in another 4.1 billion rupees, with the total climbing marginally higher than last year.

Cigarettes, which are addictive, have ‘inelastic demand’ (a steep demand curve with a slope greater than 45 degrees) as people find it difficult to stop smoking.

CTC said the usual 13 percent increase in revenues would not come this year.

Cigarettes and guns are among the few products that kill when used as directed by the manufacturer.

The firm had closed two leaf depots and cut factory shifts by a third.





Meanwhile, 35 million smuggled cigarettes worth 1.7 billion rupees in the street had been seized, indicating active smuggling.

CTC said products taxed at lower rates such a ‘beedi’ were also eating away at state revenues.

CTC, which is a unit of British American Tobacco and Phillip Morris, said profits rose to 3.19 billion rupees from 3.0 billion rupees a year earlier. Earnings per share went up to 17.07 rupees from 16.31 rupees.

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