Illicit cigarette market: Rs. 18 bn loss to the state
While businesses keep arguing over various outrageous taxes imposed by the government of Sri Lanka in certain sectors, pointing out the loss made due to smuggling of cigarettes into the country is vital. If smuggled cigarettes were taxed the government would have earned billions, a new study reveals.
Three professors from the University of Kelaniya and Open University of Sri Lanka (OUSL) launched a report titled ‘A baseline study on the illicit cigarette market and the resulting tax implications for Sri Lanka’. The report states that the government has lost Rs. 18 billion in tax revenue in 2018 due to cigarette smuggling into the country.
Dr. S.N Morais and Prof S.S. Colombage from the Department of Social Studies at the OUSL and Dr. C.N Wickramasinghe from the Department of Commerce and Financial Management at the University of Kelaniya conducted the study.
On Monday the report was launched at the OUSL in the presence of Customs, Police and Special Task Force officials. At the event questions were fired at the three professors as to who funded for the research while it also raises the question as to whether it was backed by local cigarette manufacturing interests. One of the professors at the event responded that a private consulting company funded the research.
According to the report it is estimated that 583 million illicit cigarettes have entered Sri Lanka in 2018 which amounts to 15.57 per cent of the total tobacco market. As a result the Government incurred a staggering revenue loss of Rs. 18 billion in 2018. The report points out that given the infrastructure and human resource constraints at law enforcement level, coupled with the potential extraordinary profits to be made with low penalties, there is considerable incentive for people to engage in the illegal trafficking of cigarettes. In addition to the massive revenue losses incurred, a booming illicit trade also undermines the government’s tobacco control policies.
Methods adopted in this study to collect primary data were empty cigarette pack collection, cigarette butt collection, test shopping, surveys with smokers and interviews with policy makers and law enforcement authorities. Surveys were conducted in Colombo, Gampaha, Kalutara, Galle, Matara and Ampara.
According to the cigarette butt collection survey, illicit cigarettes account for 15.6 per cent of total cigarette consumption. As per the empty pack collection survey, 10.8 per cent of the total packs collected are illicit. Around 28 per cent of smokers interviewed had consumed illicit cigarettes during the week prior to the interview. Three per cent of the cigarettes purchased for testing were illicit as per the survey.
Some recommendations stated in the report includes, higher taxes are necessary but not a sufficient condition to mitigate smoking, it is appropriate to streamline legislation to curb smuggling and local trading activities of illicit tobacco products through severe punishments. The authorities may consider enforcing strict controls in places of transit, warehouses and ventures which might entail high degrees of fraud. Imposition of rigorous investigation procedures and criminal prosecutions would help to streamline detection, seizure and destruction of illicit products.
The report also states that due consideration may be given to improve the infrastructure in customs investigations with state-of-the-art anti-smuggling equipment such as x-ray scanners, endoscopes, mirrors, night vision equipment and advanced cameras. Capacity building appears to be necessary in law enforcement agencies, including the Customs, Excise Department and Police to control smuggling and trading of illicit cigarettes.