General
After disqualifying Indian bidders, Sri Lanka hopes to select Digital ID printer by 2024 Q1
ECONOMYNEXT – Sri Lanka’s non-tax paid cigarettes, made up of smuggled foreign brands and counterfeits have risen to 29 percent of the market in the third quarter of 2023, according to a survey.
Sri Lanka’s legal cigarette sales are in long-term decline, while there has been tendency for illegal products to go up, a periodic survey by Colombo-based Research Intelligence Unit has found.
The rise in illicit sales were driven by a currency crisis and inflation which had reduced purchasing power and tax hikes which had made smuggled products more competitive, RIU said.
After two tax hikes in 2023, the legal product was around 125 rupees a stick while the smuggled products, were around 80 to 100 rupees. A brand called ‘Manchester’, was widely smuggled from East Asia, the report said.
In 2017 and 2018, legal cigarette sales were around 3,150 million sticks, with smuggled products around 14 percent.
In 2019, legal sales dropped to 2,621, after the 2018 currency crisis, with illicit sales estimated at 614 million sticks or 21 percent.
In 2020, legal sales had fallen further to 2,287, and illicit ones increased to 722 million or 24 percent.
In 2021 legal cigarette sales had increased to 2,341 while illicit were estimated to have fallen to 633 million sticks or 21 percent of market share.
In 2022, legal cigarette sales had rebounded to 2,825 million stocks and illicit sales were down to 538 million stocks, bucking recent trends with the share down to 16 percent.
The fall in smuggled cigarettes came from forex shortages and import controls, RIU said.
However in the first half of 2023, after the first tax hike and gradual normalization of trade, monthly illegal cigarettes were estimated to be around 58.7 million sticks, annualized to 716 million sticks.
After a second price hike, monthly sales were estimated to have increased to 74.8 million stocks or around 898 million sticks a year. Legal sales are projected to fall to 2.3 billion sticks, leading to an illegal share of 29 percent.
The survey is based on interviews with 2,500 individuals, the firm said.
“The landscape of cigarette consumption in Sri Lanka has been significantly influenced by a series of excise tax revisions over the years,” RIU said.
“These revisions have, inadvertently, contributed to the growing allure of illicit cigarettes within the smoking population due to their affordability.”
“Coupled with the prevailing inflationary pressures and continuous tax hikes, the real purchasing power of consumers experienced a notable decline.”
At an average tax of 87.5 rupees a stick, the revenue loss from smuggled cigarettes were about 79 billion rupees.
There were large profits to be had in selling illicits at around 80 to 100 rupees a stick. RIU said cigarettes came through ports and airports hidden in other goods, some were hand carried and foreign migrant workers also brought them.
Some of the product came via fishing boats.
“In addition to these, traffickers hide illicit cigarettes inside containers. In this way they will be able to smuggle large quantities in one go,” the report said.
The profit from smuggling a 40-foot container with 10 million sticks was estimated to be around 700 million rupees. The fine was one million rupees.
RIU said enforcement actions had to be tightened to reduce smuggling. But the public was also buying due to high taxation.
Separately RIU said beedi sales have also been growing. Beedi sales were estimated to have grown from 3.78 billion sticks in 2017 to 5.9 billion in 2022 and projected 6.51 billion in 2023. (Colombo/Dec18/2023)
