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Government lost Rs. 13 billion in revenue from cigarettes

Ceylon Tobacco Company PLC (CTC) says that the revenue model which would have earned the government of Sri Lanka around Rs. 100 billion in 2016 is now broken. The company notes that the excise and VAT hikes in October and November last year, which led to a staggering 43% price increase in legally manufactured cigarettes, have severely impacted what the government earned through the sale of legal cigarettes in Sri Lanka.

CTC paid Rs. 73 billion in excise during the first nine months of 2016. Based on projections made government should have earned more than Rs. 27 billion in the last three months of the year. However, post the exorbitant excise hike, revenue figures came down to Rs. 14 billion during the last quarter, creating a dent of over 44% in revenue for the last quarter. As a result, state coffers could only earn Rs. 87 billion, incurring a loss of LKR 13 billion.

Commenting on this situation, MD/CEO, Michael Koest says, “The government’s objectives of increasing taxes on CTC’s products were twofold. 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 also announced earlier that it was compelled to make a 20% headcount reduction in its Colombo factory and was shutting down 4 leaf depots as a result sales dipping by 45%. (Colombo Gazette)

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