Minister of Health overestimates impact of tax policy

Fact Check

On 20 February 2019 the Daily News quoted Minister of Health, Nutrition and Indigenous Medicine Rajitha Senaratne as saying the above.

We have interpreted the minister’s statement as referring to tax on cigarettes. The Minister has engaged on cigarette tax policy over the last three years.
Two types of taxes are applied to cigarettes.

1. Value-added tax (VAT): as a percentage of the price of the cigarette.
2. Excise tax: a fixed amount per cigarette that is levied at the point of production. Excise tax is the primary tax on cigarettes.

Cigarette companies set prices taking excise tax into account. Therefore, it is cigarette companies—and not the government—that determines the percentage of tax.

Exhibit 1 shows prices and estimated taxes for cigarettes of length 72-84mm and cigarettes below a length of 60mm. These two length categories accounted for over 85 per cent of cigarettes sold in Sri Lanka in 2017.

The government’s primary increase on cigarette taxes occurred towards the end of 2016: in October, excise tax was increased, and in November, the 15 per cent VAT was reinstated. At the same time, the tobacco company also increased the price. The resulting percentage of total (VAT + Excise) tax in price has been between 70 to 74 per cent. A subsequent tax increase took place in August 2018 for cigarettes of length 72-84mm and 84+mm, along with yet another CTC price increase. This did not change the percentage of tax in price.

Therefore, the Minister is not correct in asserting that the tax is/was 90 per cent. We classify this statement as FALSE.

Exhibit 1: Cigarette price and tax revisions, 2016-2018