Cigarette Taxation Formula - The Cost of Forgetting

Abstract

In 2019 the government took a step in the right direction by introducing an indexation policy where taxes on cigarettes was proposed to be adjusted in line with GDP and inflation. Previous insights show that the foregone revenue in 2020 due to the failure in implementing the policy amounts to 20 billion. This insight presents the calculation to identify the revenue consequences from 2021-2023 due to the continued failure to apply the proposed formula. The cumulative revenue foregone from 2020 to 2022 due to failure in implementing the formula properly amounts to LKR 85 BN. If the government rectifies the mistake and applies the formula correctly an extra revenue of LKR 45 BN could be earned in 2023.