The Committee of Public Finance (COPF) revealed new measures regarding the regulation of cigarettes and electronic (vape) cigarettes in Sri Lanka at a recent session.
The Excise Department confirmed that the use of electronic cigarettes remains illegal, with a program in place to regulate their use and strict enforcement actions to arrest individuals caught using these devices.
The Director General of the Department of Fiscal Policy, Dr. Kapila Senanayake, announced that the corporate income tax on cigarettes will increase to 45% starting from April 01.
COPF chair Dr. Harsha de Silva questioned the effectiveness of Sri Lanka’s cigarette tax policies, expressing concerns over whether the taxes have been gradually decreasing.
In response, Dr. Senanayake elaborated on the variety of taxes involved in the pricing structure of cigarettes, such as excise duty, VAT, SSCL, and corporate income tax. The corporate tax rate will rise from its current 40% to 45% as part of the government’s ongoing fiscal adjustments.
“Cigarette sales (sticks) in 2018 amounted to 3.1 billion but has nw dropped to about 2 billion,” Dr. Senanayake revealed, while emphasizing that the government has no direct mechanism for regulating cigarette pricing.
He clarified that, while taxes are imposed by the government, the price of cigarettes is set by the companies themselves, making it difficult to align fully with global pricing standards.
As a result, Sri Lanka’s effective tax rate on cigarettes falls between 66% and 71%, he added.