CTC mulls closing Lankan fag production plants

With a proposed 90% tax in the offing for cigarettes by the government and also the embargo on growing tobacco by 2020, Ceylon Tobacco Company is seriously looking stopping producing cigarettes in Sri Lanka.

Cabinet spokesman Health Minister Dr. Rajitha Senaratne said he will draft a Cabinet paper to increase taxes on cigarettes from the present 67 to 72 percent of purchase price to 90 percent of purchase price. Under a Sri Lankan government proposal, taxes on cigarettes will be increased to the point where they accounted for 90 percent of their purchase price.

The minister said he felt very strongly about this measure, which will benefit the people of Sri Lanka. “All the money raised from these taxes will be directly used for public healthcare services,” he said. This move would make Sri Lankan produced cigarettes the highest taxed item in the world that is being produced by a private company. Currently Sri Lankan cigarette prices are the second highest in Asia.

The move by the government will also deprive farmer families an income of around Rs. 100, 000 per acre by growing tobacco every six months of the year, land used for paddy fields. There are 20,000 families supplying tobacco leaf and over 181,000 dependents from the industry.

A Ceylon Tobacco Company official said they have not been officially informed about this. “However with a tax of this magnitude, it would be more profitable for us to import and sell. Maintaining factories and paying such high tax may affect our bottomline to a great deal.”

The CTC is one of the highest tax payers to the country accounting to Rs. 91.6 billion last year which is 7% of the total tax revenue to the government. In the past decade they had paid Rs. 600 billion as taxes making it the biggest individual tax contributor to the state.

CTC official said that in the event of high local cigarette prices it may result in smuggling depriving the government of legal revenue. It was estimated that State revenue loss due to cigarette smuggling in 2015 was Rs. 9 billion.

People would move to cheaper brands such as beedi which is sold at Rs. 3 as against most sold brand of cigarette of Rs. 38.

Figures also show that only 0.01% of Sri Lanka’s arable land is used for tobacco cultivation and government is not burdened for paying fertilizer subsidy or purchase of crop.

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