Feb 14, 2017

High taxes trigger an influx of illicit cigarettes

Sri Lanka’s high prices in legally manufactured cigarettes have triggered an increasing influx of smuggled tobacco products  

The tobacco industry in Sri Lanka, consists of legally manufactured cigarettes (55 percent), beedi (43 percent) and illegal or smuggled cigarettes (2 percent ). Over the last decade, total smoking has increased with declining cigarette volumes and growing beedi, while smuggled products have recorded an increase.

Customs officials recently arrested three persons at the Colombo International Airport for attempting to smuggle 70,000 sticks of illicit cigarettes into the country.

This detection follows a similar incident in November last year when 36,600 sticks were seized at the airport, after two women were also nabbed carrying 80,000 sticks, official data showed.

They were all travelling from Dubai and the value of this latest consignment of contraband caught at the airport was over Rs. 3.5 million.

Besides the action at the airport, last month police have already conducted over 150 raids on illicit cigarettes island wide seizing 1,460,576 sticks valued at Rs. 73 million.
According to official data authorities confiscate over 100 million sticks smuggled into Sri Lanka worth over Rs. 4 billion.

Following the recent excise/VAT hike on legal cigarettes, the price difference between the most popular brand of cigarette manufactured by CTC (Rs. 50/- per stick) and beedi (Rs. 5/- per stick), a locally manufactured tobacco product is now a whopping Rs. 45/-.

Furthermore, market statistics indicate that Illegal cigarettes are available in the market for as low as Rs. 20 – 30 per stick.
While the country has managed to curtail smuggled cigarettes in the market to 2 percent, market statistics indicate that the high prices in legal cigarettes have triggered an increasing influx of smuggled tobacco products.
As a result of the excise led price increase imposed by the government of Sri Lanka on 04 October 2016, the price of a cigarette manufactured in Sri Lanka increased by Rs.7.
Furthermore, as of 01 November 2016, the government also imposed a 15 per cent VAT on cigarettes further increasing the price of a cigarette of the most popular brand manufactured by CTC to Rs. 50/-. This was a 43 percent increase in total.

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