Article 6 : (Tobacco Taxation) of the Framework Convention on Tobacco Control (FCTC) of the World Health Organization
The FCTC states that the Parties to the treaty should implement the simplest and most efficient system that meets their public health and fiscal needs, by taking into consideration of their national circumstances. As recognized in Guiding Principle 1.1, the Parties have sovereign right to determine and establish their taxation policies, including the level of tax rates to be applied.
The Presidential Task Force on Drug Prevention is the premier Sri Lankan interlocutor for evidence-based policy measures and community-based interventions to prevent and reduce harm caused by tobacco, alcohol and other drugs. The President of Sri Lanka directly monitors the activities of the Presidential Task Force on Drug Prevention, (Tobacco/alcohol and other drugs).
There is no single optimal level of tobacco taxes that applies to all countries – because of the differences in tax systems, in geographical and economic circumstances, and according to the national public health and fiscal objectives.
Sri Lanka government has given consideration to the FCTC guidelines in determining and adopting tobacco taxes. Similarly, tax reforms have been designed to increase in par with affordability which is calculated using the per capita income, rate of inflation and household income.
Currently, 74 percent of the price of a cigarette is excise and VAT. In 2006, the excise tax was 71 percent of the price along with 12 percent VAT resulting more than 80 percent tax in cigarettes. Thus when compared with the year 2006 of the cigarette price, tax ratio was less than 80 percent. This explains how big profits the tobacco industry is making by selling a LETHAL product for human consumption.
The other drawback is lack of a transparent formula with the Finance Ministry to increase tobacco tax. The fact that they do not adhere to guidance of NATA when determining tobacco tax is also a shortcoming.
Even the Finance Ministry has no a concrete plan in regard to tobacco tax, in spite of the fact that the President has instructed the authorities that the country should not depend on revenue from the tobacco industry.
In 2016, the annual gross profit of CTC was 20.3 billion rupees, while it was 17.5 billion rupees in 2015. In stock market, CTC is the highest earning company. Thus they do whatever possible to amass their profits and wealth.
Guidelines for tobacco taxation according to SL economist Dr. Nishan de Mel
According to Dr. Nishan de Mel, the best way of curbing tobacco consumption is through increase of price – cigarette prices can be increased through taxes imposed by the government.
The government does not have any legal capacity to fix cigarette prices, only the tobacco company (CTC) is able to control prices, however, the government can direct price increases by increasing taxes.
Tobacco Pricing Graph 1: Number of cigarettes affordable at market price –
The dotted line in Graph 1 indicates that Sri Lanka’s cigarette prices have maintained its affordability with limited deviation between 1980 to 2000. However thereafter, the prices of cigarettes have increased greater than the income of the households and therefore cigarettes have increasingly become more affordable. If the same affordability was maintained from 2000 onwards, the average number of cigarettes a person can afford per year would be 9,542. However due to increasing affordability, the number of cigarettes that can be bought has almost doubled to 17,346 per year.
Has the government adopted the aforesaid guidelines so far?
The government of Sri Lanka has adopted the aforesaid guidelines to a certain extent. We are currently examining the pros and cons of the tax measures and depending on that we would proceed gradually.
It is hard to fully adhere to these guidelines, at once. There is a huge influence or interference from the tobacco industry – we understand that the industry immensely pressurizes the Ministry of Finance.
Sri Lanka President’s role towards tobacco control
The President addressing a conference in Kandy, in 2016 expressed his well awareness of the shrewd tactics of the tobacco industry, since he was 17 years. As the Minister of Health, he proved his passion for the cause, by fighting with the tobacco company, both in and out of the courts facing threats, but won the battle of introducing Pictorial Health Warnings on tobacco products, which is a provable measure of making the general public aware of the adverse health effects of smoking. It is a smoker’s right to know the harm. However, to achieve the maximum results of implementing PHWs, a country should also ban sale of single cigarettes completely. We urge this government to implement this regulation as early as possible.
The implementation process of Pictorial Health Warnings (Article 11 of the FCTC) was a legal and a crucial battle which continued for two and a half years and finally he succeeded in achieving his target in full, i.e. 80 percent, only after himself being selected as the President of Sri Lanka, by amending the Act.
President Maithripala Sirisena has stated that his earnest expectation was to remove excise revenue earned through alcohol and tobacco sales from the national budget by 2020 through adoption of strong action against alcohol and tobacco industries.
The President has also pledged to stop tobacco cultivation in Sri Lanka by 2018. He is of the opinion that tobacco revenue can never be an “income for country’s development”.<.b>
High tax to reduce consumption – An eye opener
During the past one year or so – a dialogue among the general public was created on high cigarette prices. It paved the way for tobacco control activists to educate the public on the havoc created by tobacco use and how beneficial it is to remain a non-smoker. It was an eye opener for people who did not know of the harm and who have been deceived by the tobacco industry, finally to realize the truth. This enlightenment helped both the users to quit smoking and non-users to remain non-smokers.
Has tobacco tax helped or worsen the Sri Lanka economy?
According to world-wide health experts and economists, it is crystal clear that tobacco consumption only makes the user sick, brings in premature death, less productivity and poverty. Sri Lanka has to spend 72 billion rupees a year, to treat the patients suffering from various diseases caused through tobacco smoking.
Therefore this “so-called” revenue that we collect from the tobacco company is insufficient to meet with government expenses being incurred in treating patients. Thus revenue from tobacco is not for development of a country, but for disaster.
Moreover, President does not consider at all tobacco tax as a suitable form of revenue to build Sri Lanka.
Statistics regard to tobacco tax vs. consumption
Annual government revenue from cigarettes (excise tax):
2015 – LKR 80 billion
2016 – LKR 90 billion (after tax reforms)
The number of cigarette sales:
• 2014 – 3,560 million
• 2015 – 3,960 million (more than 10 percent higher compared to 2014)
• 2016 – 3,790 million(after imposing tax)
In 2016, cigarette sales were still higher compared to year 2014, with less than 5 percent reduction compared to 2015) The figures given above are sales figures. Generally, tobacco production is higher than the sales. According to the annual reports of Ceylon Tobacco Company and Sri Lanka Customs data for 2015 and 2016, cigarette production was higher than sales by about 200 million per year. The reported exports from the excess production were small compared to total surplus.
The key remedy to the problem is to increase tobacco tax which results in increasing government revenue and on the other hand in helps in reducing consumption, especially among the youth (potential users) and the poor.
This strategy is a win-win situation for the country.
Taken from – asiantribune.com