Industry Responses to Tobacco Tax Increase in 2016

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Background

In 2016 October & November, the highest one time increase of the cigarette price was recorded in the 4th Quarter of 2016 in Sri Lanka. It was due to an increase of Excise Tax in October and introduction of 15% Value Added Tax (VAT) in November.[1]

Industry Responses

Government Losing Tax Revenue

Several media reports quoted the Ceylon Tobacco Company PLC (CTC) officials and hinted at a government revenue loss due to the tax increase.[2][3][4] However, the government tax revenue from the CTC for the year 2016 was 7.4 Billion rupees more than the amount in the year 2015 (80 Billion).[2][4][5][6]

Loss of Livelihoods

CTC officials, including the Chief Executive Officer Michael Koest claimed tobacco tax increase will affect the livelihoods of many involved in tobacco industry (Image 1). The main two ways reported were laying-off of staff and closure of leaf depots. [7][8]

Image 1: Daily FT e-newspaper quoting CTC CEO Michael Koest reporting a 20% lay off of staff due to tax increase[7]

The ‘lay-offs’ that reportedly happened due to tax increase was 20%.[7] Even though the actual number of employees laid-off was not mentioned in the media, considering the number employed by the CTC in 2015 (264), the actual figure will be around 50.[5] (Also see Industry Arguments: Impact on Livelihoods).

With related to closure of leaf depots, according to the CTC spokespersons, CTC had to import tobacco to manufacture cigarettes in 2016 as farmers moved out of cultivating tobacco. Thus, low production of tobacco leaves lead to reduced need for leaf depots, contributing to their closure.[4][7]

Increase of Beedi Consumption

CTC had claimed Bidi consumption increased in Sri Lanka from 2009, amidst evidence to contrary (See Industry Arguments: Increase of Beedi Consumption). The same argument was raised against the tax increase in the year 2016 as well.[2]

Increase of Illicit Tobacco Trade

CTC publically expressed their concern on increased illicit tobacco in several occasions, especially when a tax increase was implemented.[9][5] The argument was again raised around the October 2016 tax increase.[2] However, the number of raids by the Excise Department, the indicator quoted by the CTC in its claim, remained fairly static for the preceding five years.

TobaccoUnmasked Resources

Other relevant TobaccoUnmasked entries:


Notes

  1. Daily Mirror. Cigarette price to increase up to Rs. 55, 23 October 2016, accessed March 2017
  2. 2.0 2.1 2.2 2.3 Colombo Page. Sri Lanka's Ceylon Tobacco Company Profit After Tax Rs. 12.56 billion in 2016, 28 February 2017, accessed March 2017
  3. B Sirimanna. Cigarette sales drop cuts tobacco tax revenue by half, The Sunday Times, 04 December 2016, accessed March 2017
  4. 4.0 4.1 4.2 Mirror Business. Ceylon Tobacco Company PLC says excise tax drop, The Sunday Times, 05 March 2017, accessed March 2017
  5. 5.0 5.1 5.2 Ceylon Tobacco Company PLC. Annual Report 2015, 2016, accessed March 2017
  6. Ceylon Tobacco Company PLC. Annual Report 2016, 2017, accessed May 2017
  7. 7.0 7.1 7.2 7.3 Daily Ft. Taxes hit - CTC announces 20% layoff of employees, 03 January 2017, accessed March 2017
  8. Sri Lanka Mirror. CTC announces job cuts, 04 January 2017, accessed March 2017
  9. Ceylon Tobacco Company PLC. Tobacco trafficking, 2017, accessed March 2017