Taxes up, revenues down

Ceylon Tobacco Company (CTC) says that the revenue model that would have earned the government of Sri Lanka about Rs100 billion in 2016 is broken.

According to a story in the Colombo Gazette, the company said that excise and VAT hikes in October and November, which led to a 43 percent price increase in legally manufactured cigarettes, had severely impacted what the government earned through the sale of licit cigarettes in Sri Lanka.

Smokers, through the CTC, paid Rs73 billion in excise taxes during the first nine months of 2016.

And, based on projections, the government should have received more than Rs27 billion in tobacco excise taxes during the last three months of the year.

However, after the excise hike, the revenue was actually Rs14 billion during the final quarter, which took the revenue for the year  to Rs87 billion, a shortfall of Rs13 billion.

“The government’s objectives of increasing taxes on CTC’s products were twofold,” said CTC MD and CEO, Michael Koest. “They hoped this measure would lead to a decrease in tobacco consumption in the country while at the same time increasing its revenue from legal cigarettes.

“However, what we have seen during the last quarter of the year contradicts both these objectives.

“We have seen a surge in illicit cigarettes entering the market and smokers substituting legal cigarettes with smuggled products or beedi.

“What’s also disturbing is that the government is losing out on the revenue opportunity.”

CTC said earlier that it was cutting jobs by 20 percent in its Colombo factory and shutting four leaf depots as a result of its sales dipping.