How Different Budget Proposals Captured Tobacco Taxation in Sri Lanka

Summary

• Sri Lanka became a Party to the Framework Convention on Tobacco Control (FCTC) in February 2005.
• “Raise tobacco tax” is identified as the most effective strategy of the MPOWER strategies recommended by the FCTC.
• This page summarises how different government captured this important strategy in their budget speeches.

Introduction

Sri Lanka became a Party to the Framework Convention on Tobacco Control (FCTC) on 27 February 2005. Framework Convention on Tobacco Control (FCTC) is the global health treaty of WHO to combat the tobacco epidemic. FCTC Article 6: Price and Tax Measures to Reduce the Demand of Tobacco recommends its parties to have efficient and effective tobacco tax and administration systems to significantly reduce tobacco consumption and prevalence. It also identifies tobacco taxation as a sovereign right of parties and instructs to protect tax policies from vested interests.

Tobacco taxation in Sri Lanka prior to FCTC

• Before the FCTC era, taxation was based on tobacco leaf before manufacturing rather than on the tobacco products before sale. The earliest formal tobacco tax law in Sri Lanka was the Tobacco Tax Act No. 27 of 1953.
• Tobacco Tax Act No. 27 of 1953 imposed a specific tax on tobacco leaf intended to be used in manufacturing cigarettes or pipe tobacco. It also granted refunds of such tax to manufacturers of exported cigarettes or pipe tobacco.
• Initially, the tax was levied per cigarette stick regardless of its size.
• In 1989, Sri Lanka imposed excise duty on cigars, cheroots, cigarillos, and cigarettes of tobacco or tobacco substitutes based on their length categories under Excise (Special Provision) Act, No. 13 of 1989.
• In 1999, the government re-enacted the Tobacco Tax Act to extend tobacco tax coverage formally to all manufactured tobacco products, including cigarettes, cigars, beedis, and pipe tobacco.
• In 2004, the Tobacco Tax (Amendment) Act No. 9 of 2004 introduced licensing for beedi tobacco importers, defining "beedi tobacco," removing the term "cigarette substitutes," and enhancing enforcement powers for excise officers to inspect premises, seize contraband, and arrest offenders, all aimed at controlling tobacco products and increasing revenue.

Image 1: Front page of the Tobacco Tax (Amendment) Act, No. 9 of 2004, published as a supplement to Part II of the Gazette. Source: Parliament of the Democratic Socialist Republic of Sri Lanka

How Tobacco Taxation was captured in budget speeches under different Governments in Sri Lanka since the ratification of FCTC

The following tables presents the information on how different budget proposals captured tobacco taxation in Sri Lanka since ratification of the Framework Convention on Tobacco Control (FCTC) in 2005.

Year 2004 to 2010

• Government – The 6th Parliament of the Democratic Socialist Republic (DSR) of Sri Lanka
• Ruling Party – United Peoples’ Freedom Alliance (Eksath Janatha Nidahas Sandhanaya)
• Head of State – Mahinda Rajapaksa

Table 1: Mentioning of tobacco taxation in the Budget Speeches during the 6th Parliament of Sri Lanka

Year	Finance Minister responsible	Mentioning of tobacco taxation in the budget speech	Implementation of the proposed changes
2006	Mahinda Rajapaksa	Budget speech is not publicly available
2007	Mahinda Rajapaksa	Improved tax on tobacco contributing to a 22% increase in revenue Increased the Business Turnover Tax Rate to 5% on cigarettes for North and Eastern province	Implemented –Excise Tax increased on cigarettes and the Mid-Year Fiscal Position Report notes it contributed to a 2% decline in cigarette sales and a moderate growth in VAT revenue In accordance with the ‘’Mathata thitha’’ (මතට තිත) programme, it was proposed to discourage the usage of cigarettes; the prices of certain categories of cigarettes were increased by fifty cents. Implemented - Increased the Business Turnover Tax Rate to 5% on cigarettes
2008	Mahinda Rajapaksa	Proposed revisions to the Excise and Cigarettes Tax Expected to increase the price of a cigarette by Rs.2/-	Implemented –increased the rate of excise duty on cigarettes And according to the Mid-Year Fiscal Position Report the percentage increase of excise duty from June 2007 to March 2008 range from 17-30% Implemented – Cigarette price of gold-leaf increased by Rs. 2.00 and Bristol/Viceroy increased by Rs. 1.00
2009	Mahinda Rajapaksa	Didn't mention a tobacco tax intervention. However, proposed to allocate Rs. 100 million to the Excise Department, religious places of worship, schools, and voluntary organisations to eliminate the drug menace from the society through the ‘’Mathata thitha’’ (මතට තිත) programme and to rehabilitate those who are addicted to alcohol, drugs, and cigarettes	Not implemented –There is no clear official evidence to prove it was implemented

Year 2010 to 2015

• Government – The 7th Parliament of the Democratic Socialist Republic (DSR) of Sri Lanka
• Ruling Party – United Peoples’ Freedom Alliance (Eksath Janatha Nidahas Sandhanaya)
• Head of State – Mahinda Rajapaksa

Table 2: Mentions of tobacco taxation in the Budget Speeches during the 7th Parliament of Sri Lanka

Year	Finance Minister responsible	Mentioning of tobacco taxation in the budget speech	Implementation of the proposed changes
2010	Mahinda Rajapaksa	Tobacco tax was not mentioned in the budget speech
2011	Mahinda Rajapaksa	Proposed to allocate a sum of Rs. 200 million to implement ‘’Mathata thitha’’ (මතට තිත) initiative in every single village and township as a national priority Increased the tax on profits of businesses engaged in the manufacture and distribution cigarettes from 35% to 40%	Not Implemented –There is no clear official evidence to prove it was implemented Implemented - increased the rate of income tax of any liquor or tobacco product by 40 per centum
2012	Mahinda Rajapaksa	Tobacco tax was not mentioned in the budget speech
2013	Mahinda Rajapaksa	Proposed to revise the Excise (Special Provisions) Duty on Pipe Tobacco	Implemented – Revised the excise duty of pipe tobacco as Rs. 600/= per kg
2014	Mahinda Rajapaksa	Tobacco tax was not mentioned in the budget

Year 2015 to 2020

• Government – The 8th Parliament of the Democratic Socialist Republic of Sri Lanka
• Ruling Party - United National Party
• Head of State – Maithripala Sirisena

Table 3: Mentions of tobacco taxation in the Budget Speeches during the 8th Parliament of Sri Lanka

Year	Finance Minister responsible	Mentioning of tobacco taxation in the budget speech	Implementation of the proposed changes
2015	Ravi Karunanayake	Proposed to increase the Excise Tax on cigarettes (to raise Rs. 14,000 million of additional revenue in 2015) The income tax rate was reduced by 50% (up to a maximum taxable income of Rs.500 Mn for a period of 5 years) for manufactured products except for liquor or tobacco	Partially implemented – The excise duty was increased only for two cigarette length categories: cigarettes exceeding 72 mm and cigarettes exceeding 84 mm Implemented - the income tax rate for manufactured products reduced by 50% except for liquor or tobacco
2016	Ravi Karunanayake	Restructured the present Corporate income tax rate structure into a two-rate band system, the higher rate being 30% and the standard rate being 15%. Tobacco named under the higher rate (30%) Proposed to increase Customs Duty on Tendu leaves (used to roll traditional cigarettes called Beedi) Increased the beedi manufacturing license fee from Rs.1500/- to Rs.5,000/- Imposed a surtax at the rate of 25% of income tax liability on tobacco	Partially implemented – did not follow two-rate band system, but the government went with different rate structures and higher rates for tobacco, liquor, and gaming under subsequent legislation (40%) Implemented - increased the rate of Cess specified in tendu leaves from Rs. 350 per kg. to Rs. 2000 per kg. Not implemented - beedi manufacturing license fee was not increased Not implemented –There is no clear official evidence of a surtax rate on tobacco
2017	Ravi Karunanayake	The corporate income tax rate increased to 40% for tobacco Proposed to issue license to import tendu leaves by charging an annual license fee of Rs. 5 million Government decided to allocate Rs.150 million to Sri Lanka Police and Rs. 50 million to National Youth Services Council to engage in drug prevention, eradication, and rehabilitation of those addicted to drugs Government requested the Ceylon Tobacco Company PLC (CTC) to donate Rs. 500 million to the Presidential Fund to be utilised by the Presidential Task Force for the antismoking campaign	Implemented – The corporate income tax rate increased to 40% for tobacco Not implemented – not issued license to import tendu leaves by charging an annual license fee of Rs. 5 million Implemented– the annual report of the ministry of finance, they mentioned that government expenditure as (Recurrent - 4,453,000,000 and capital - 960,500,000) for Department of Police for the purposes: Implement the Development Activities and engage in drug prevention, Eradication and rehabilitation of those addicted to drugs Not implemented - Ceylon Tobacco Company PLC (CTC) publicly stated it would not make any funds available to the government outside the current tax regime under any circumstancesThe Minister got heavily criticised for this statement and it was a direct violation of FCTC Article 13: Tobacco Advertising, Promotion and Sponsorship and FCTC Article 5.3 of the WHO Framework Convention on Tobacco Control (FCTC)
2018	Mangala Samaraweera	Did not mention a tax related intervention. However, suggested to issue licenses to import Cigarettes and Cigars	Not Implemented – not issued license to import cigarettes
2019	Mangala Samaraweera	Excise Duty on cigarettes increased by 12% according to the stick length as follows: 60 – 67 mm - Rs.19,500/- per 1000 sticks 67 – 72 mm - Rs.23,000/- per 1000 sticks 72 – 84 mm - Rs.37,580/- per 1000 sticks >84 mm - Rs.42,200/- per 1000 sticks Imposed a Nation Building Tax on manufacture of Cigarettes (estimated Rs. 5,000 million revenue) Revised CESS duty on importation of Tendu Leaves from Rs. 2,500 to Rs. 3,500 per Kg	Implemented –excise duty on cigarettes increased as mentioned in the budget speech Partially implemented – Imposed a Nation Building Tax on manufacture of cigarettes, only applied for a part of the year in 2019 Implemented- cess duty on the importation of tendu leaves (beedi leaves) increased from Rs. 2,500 to Rs. 3,500 per kg

Year 2020 to 2022

• Government – The 9th Parliament of the Democratic Socialist Republic of Sri Lanka (First Phase)
• Ruling Party – Sri Lanka Podujana Peramuna
• Head of State – Gotabaya Rajapaksa

Table 4: Mentions of tobacco taxation in the Budget Speeches during the 9th Parliament of Sri Lanka

Year	Finance Minister responsible	Mentioning of tobacco taxation in the budget speech	Implementation of the proposed changes
2020	Mahinda Rajapaksa	Tobacco tax was not mentioned in the budget speech
2021	Mahinda Rajapaksa	Proposed to improve the efficiency of tax collection through the introduction of a single Special Goods and Service Tax	Not Implemented - government did not implement the proposed Special Goods and Services Tax on cigarettes
2022	Basil Rajapaksa	Proposed to increase Tax on Cigarettes Proposed to implement Special Goods and Services Tax which was proposed in 2021 budget	Not implemented – not increased the tax on cigarettes Not implemented - government withdrew the special Goods and Services Tax (GST) bill after the Supreme Court’s decision of requiring a two-thirds majority and referendum to enact it as a law

Year 2022 to 2024

• Government - 9th Parliament of Democratic Socialist Republic of Sri Lanka (Second Phase)
• Ruling Party – Sri Lanka Podujana Peramuna
• Head of State – Ranil Wickremasinghe

Table 5: Mentions of tobacco taxation in the Budget Speeches during the 9th Parliament of Sri Lanka

Year	Finance Minister responsible	Mentioning of tobacco taxation in the budget speech	Implementation of the proposed changes
2023	Ranil Wickremasinghe	Propose to impose a tax of Rs. 2 per Beedi stick	Implemented - tobacco tax of two rupees (Rs. 2/-) per beedi was imposed on each beedi produced
2024	Ranil Wickremasinghe	The VAT rate relevant to tobacco increased to 18% Proposed to strengthen the tax collection and enforcement in beedi Industry	Implemented – increased the value added tax to 18% with effect from the 1st of January 2024 Not Implemented - There is no clear official evidence to prove that the tax collection and enforcement on beedi industry was strengthened

Year 2024 to Present (As of March 2026)

• Government – The 10th Parliament of the Democratic Socialist Republic of Sri Lanka
• Ruling Party – Jathika Jana Balawegaya
• Head of State – Anura Kumara Dissanayake

Table 6: Mentions of tobacco taxation in the Budget Speeches during the 10th Parliament of Sri Lanka

Year	Finance Minister responsible	Mentioning of tobacco taxation in the budget speech	Implementation of the proposed changes
2025	Anura Kumara Dissanayake	Increased corporate income tax on cigarettes from 40% to 45% Proposed to increase the current tax applicable on Beedi at Rs.2 per stick to Rs.3 per stick	Implemented -corporate income tax increased Implemented – increased the Tobacco Tax (TT) on beedis from Rs. 2 to Rs. 3 per stick
2026	Anura Kumara Dissanayake	Tobacco tax was not mentioned in the budget speech

Tobacco Unmasked Resources

• Ceylon Tobacco Company PLC (CTC)
• Framework Convention on Tobacco Control (FCTC)
• FCTC Article 6: Price and Tax Measures to Reduce the Demand of Tobacco
• FCTC Article 5.3
• Mahinda Rajapaksa
• Ravi Karunanayake
• Maithripala Sirisena
• Mangala Samaraweera
• Gotabaya Rajapaksa
• Basil Rajapaksa
• Ranil Wickremasinghe
• Anura Kumara Dissanayake

The local language translations