POSTED AT 09:56 AM 08-01-2019
Govt. losing Rs.18 bn in revenue annually
Illicit cigarette sales
Image Courtesy: Time Magazine
The government was losing close to Rs.18 billion in revenue every year as a result of illicit cigarette sales in the country, revealed an academic study yesterday.
Academics from the Open University of Sri Lanka (OUSL) and the Kelaniya University showed that close to 15 percent of the sales of cigarettes were illicit; that is being imported illegally and thus not being taxed.
There is a lack of understanding of the illicit cigarette market and no research into it has been conducted thus far in Sri Lanka, said Dr. Neavis Morais,
Head of the Department of Social Studies, OUSL and one of the three academics in the project speaking at a seminar held at the OUSL.
He further explained that there were a general preference for Sri Lankans to go for foreign cigarettes and with it being cheaper than legal ones, the demand for it was very much present in the local market.
The inflow of migrant labour and tourists in addition to Sri Lakans themselves bringing in small quantities when they traveled abroad has kept the trade flourishing, said the study. The academics also pointed out that weaknesses in implementation of the law and given the lack of resource personnel, know-how, equipment, leaks in intelligence gathering and corruption meant that these illicit cigarettes keep escaping the tax net. According to the existing law however, the import as well as bringing of any cigarettes from outside of the country is considered illegal. Dr.Nalaka Wickramasinghe elaborating on the study which touched on six districts (chosen on the basis of the highest cigarette sales), many of those who were interviewed revealed that they bought their illicit cigarettes from the, ‘Shop nearby’ or ‘Shop in town’ (68.16 percent in total).
“These are very much available in the open market. And only around 4.08 percent got it from an illegal dealer,” Dr.Wickramasinghe said. They collected the highest number of illicit butts (within an radius of 1km from the town) in Matara with lowest in Ampara- 85 percent of cigarettes in the country are bought as loose sticks.
Emeritus Professor, Sirimevan Colombage on the loss in tax revenue said that though high taxation allowed the government to collect Rs.100 billion in revenue from the sale of cigarettes in 2017, the government could have collected more if it had clamped down more on illicit cigarettes”.
Further revenue collection rates forecast by the Treasury for the last out of nine years, when compared with actual revenue numbers show a huge gap, especially in 2017 (perhaps forecasts were higher than expected,said Prof Colombage), “Overall this is an indication of the thriving illicit cigarette trade”.
He explained that raising taxes without clamping down on illicit cigarettes would not necessarily mitigate smoking, “People will switch to cheaper, illegal cigarettes when prices of legal cigarettes keep rising”.
The study recommends that: the government have stricter enforcement of existing laws and increased oversight at ports of entry, in-market, transit warehouses; have rigorous investigation procedures and criminal prosecutions with a view to streamline detection, seizure and destruction of illicit products and build capacity of law enforcement agencies with anti-smuggling and detection technology.