The following statement was attributed to Finance Minister Mangala Samaraweera, who spoke at a Cabinet meeting on September 11. The statement, translated from Sinhala to English, is as follows: a tax income of 1,800 crore (Rs. 18 billion) has been lost due to reduced cigarette sales. The attributed statement is understood to refer to a tax revision that took place in November 2016, as there has hardly been a measurable impact of the next revision, which took place on 31 July 2018.
Details on tax/price revisions:
The revision consisted of applying two taxes. The first was the increasing of excise tax on cigarettes from 4 October 2016. The second was the re-application of the previously removed value added tax (VAT) to cigarettes from 1 November 2016. In response, the Ceylon Tobacco Company increased the price of cigarettes by more than the combined tax increase.
The higher price of cigarettes did result in a reduction in cigarette sales. But did that reduction result in reduced tax-revenue of 18 billion as claimed?
The Minister’s statement can be fact-checked by comparing 2017 cigarette sales and tax-revenue to those of 2016. The comparison is shown in Exhibit 1.
Sale of cigarettes: The data shows that cigarette sales decreased after the tax and price revision. Between 2016 and 2017, the sale of cigarette sticks reduced from 3.79 billion to 3.15 billion. This is a decrease of 0.64 billion cigarettes, or 16.9%.
Tax-revenue: The data shows an increase in tax-revenue after the tax revision. Between 2016 and 2017, tax-revenue went from Rs. 89.7 billion to Rs. 107.4 billion. This is an increase of Rs. 17.7 billion. (This comparison actually under-estimates the increase in revenue due to the tax, because some increase in revenue occurred in the last two months of 2016 as well due to the tax increase taking place on November 1.)
In sum, although cigarette sales dropped after the tax and price increase in 2016, tax-revenue increased by about Rs.18 billion, instead of decreasing by Rs.18 billion as claimed in the statement.
The data shows that the statement attributed to the Minister is precisely contradictory to what took place. Therefore, the statement is classified as BLATANTLY FALSE.
Exhibit 1: Comparison of tax-revenue and cigarette sales from 2015 – 2017
- Extraordinary Gazette Notification No. 1992/29, 10 November 2016; Central Bank of Sri Lanka Annual Report 2016; CTC Annual Reports for 2016-17; National Dangerous Drug Control Board, Handbook of Drug Abuse Information 2016-17; Data shared by the Department of Excise of Sri Lanka.