As part of ongoing research into the economic impact of illicit markets, the Research Intelligence Unit (RIU) has shared some of the key findings from its latest report which covers the economic impact of untaxed tobacco consumption in Sri Lanka. .
The report is based on the preliminary results of an ongoing island-wide survey. Given the current sovereign debt challenges facing the government, it is both timely and useful to take a closer look at the loss of revenue to the Treasury. This discusses the sources of illicit tobacco and the impact of recent COVID-19 and lockdowns on the illicit tobacco market, which represents a significant fraction of the entire tobacco industry.
The illicit tobacco market has grown in Sri Lanka over the past decade, especially since 2016. According to the World Health Organization (WHO), the high price of cigarettes in Sri Lanka makes them the most expensive in the world, on a purchasing power parity basis. (PPP). The price of the most consumed brand of cigarettes in Sri Lanka, John Player Gold Leaf, has increased significantly over the past decade, from Rs. 20 in 2010 to Rs. 70 in 2021. A major component of this increase in price occurred in 2016, when excise duties on cigarettes were increased by almost 50%. Along with this has been the increase in the illicit trade in cigarettes, which has grown from 10% in 2012 to 21% in 2021. While it is prudent to raise prices to deter people from consuming cigarettes, a more holistic approach is needed to keep the illicit market under control. .
The RIU consumer survey, conducted from September to December 2021, revealed that a significant number of illicit cigarettes were sold through family/friends/work colleagues, street vendors and known dealers. Illicit cigarette smokers also reported illicit cigarette purchases in hotels, restaurants and cafes (HoReCa). Alarmingly, a significant amount of these illicit cigarettes are also believed to have been purchased from small retail stores, supermarkets and grocery stores.
Impact of COVID-19
Based on RIU’s primary research, the size of the Sri Lankan illicit tobacco market was estimated to be 21% of the total cigarettes consumed in Sri Lanka in 2021. The research was conducted during a period that saw conditions economic and social circumstances due to the pandemic. This was evidenced by the inconsistent and sporadic nature of illicit distribution in the provinces, as revealed by investigations. Perhaps the silver lining to this narrative is the commendable efforts made by the government in 2021 to tackle the problem of smuggling. In May 2021, Sri Lanka Customs carried out the largest ever detection of illicit cigarettes of over 200 million sticks with a market value of over Rs. 9 billion. There have also been government-led public awareness campaigns on the threat to the national economy resulting from smuggling and extensive media coverage of detections made by customs, excise, police, STF and others. . These measures served as a bit of a deterrent, but the 21% estimate is still significant. This number could increase further with the normalization of travel, increased access and availability of illicit products, and rising local prices for cigarettes.
To combat the threat in a more sustainable and permanent way, greater investments must be made in strengthening border control through increased surveillance at points of entry. To this end, the current scanners installed at the Port of Colombo could be better utilized to scan containers entering the country from known illicit hotspots such as Jebel Ali Port in Dubai. The government could also use intelligence services to identify and track big players in the contraband cigarette industry.
The surveys also revealed that 56% of people island-wide admitted to consuming illicit cigarette products over a wider period that includes the pre-covid years, indicating that there is a potential demand strong in illicit products. Irrespective of the pandemic, it should also be considered that a certain percentage of survey respondents may be unwilling to share or may under-report actual consumption of illicit cigarettes due to fear of law enforcement. ‘order. This should raise serious concerns among policymakers that illicit tobacco use is a long-term challenge which, if left unaddressed, will continue to rob the government of much-needed revenue. Therefore, it is imperative that the government adopt a more comprehensive yet pragmatic tobacco control policy to achieve national health goals, maximize revenue and curb the growth of the illicit tobacco market. RIU’s report highlights policies that the Sri Lankan government can adopt to tackle the growing illicit tobacco market more directly.
Over the past 20 years, the RIU has remained an organization that has addressed matters of national interest, advocating the pursuit of prudent and pragmatic policies that avoid stimulating the growth of illicit markets. Apart from tobacco, Sri Lanka is affected by the illicit markets that exist in other sectors such as agriculture, alcohol and pharmaceuticals, resulting in loss of tax revenue for the country.
(For more information on RIU research and to access freely available research reports,
visit www.riunit.com/[email protected])