Lower Cigarette taxes result in tax revenue loss of over Rs. 25 Bn. since 2025

Sri Lanka has lost over Rs. 25 billion in potential tax revenue since 2025 due to cigarette taxation falling below the World Health Organization’s (WHO) recommended benchmark,  a study reveals.Details have been revealed in the Cigarette Tax Leakage Tracker launched by Colombo‑based think tank Verité Research.

The dashboard, hosted on PublicFinance.LK, reveals that the country is losing revenue at staggering rates, Rs. 547 every second, Rs. 32,842 every minute, Rs. 47.3 million every day, amounting to Rs. 1.4 billion each month and Rs. 17.3 billion annually.  According to the data, the shortfall as at July 15, 2026 is at Rs. 9.2 billion.

The WHO recommends that taxes make up at least 75% of the retail price of cigarettes, a level widely treated as international best practice. In 2018, Sri Lanka’s weighted-average tax-in-price stood at 74%, right at that benchmark.

However, the tax share has since declined.  Since 2025, the weighted-average tax share had fallen to 67% despite taxes rising across most of the goods after Sri Lanka’s economic crisis.

The research notes : “Most of the tax on cigarettes is an excise set as a fixed rupee amount per pack, which the government adjusts only sporadically. The excise tax was raised occasionally, but by far less than the company raised prices to increase its profits. The tax went up in nominal terms, and the news duly reported “tax hikes,” yet the tax’s share of the price kept falling.”

The research’s counter shows how much more the government would collect in cigarette taxes if the tax share had been held at the WHO’s 75% benchmark: an estimated Rs. 17.3 billion in 2026, accumulating second by second.

Verité Research notes that the government could plug this leak by gazetting increases to excise taxes across all cigarette categories.

Proposed revisions include raising the tax on cigarettes as follows :

Courtesy : publicfinance.lk

If implemented, these measures would reduce the Ceylon Tobacco Company’s 2025 profits of Rs. 53.9 billion by Rs. 17.3 billion, while significantly boosting government revenue, the research further notes.

Click here for the complete dashboard

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