Will the Increase in Cigarette Taxes Meet Budgeted Revenue?

Abstract

On January 1st, 2023, the government decided to raise the excise taxes on cigarettes by 20%. The increase affected various sizes of cigarettes differently, with the smallest size (no larger than 60mm) seeing a tax increase from LKR 6.75 to LKR 13.36 per cigarette, and the largest size (greater than 84mm) experiencing a tax jump from LKR 51.8 to LKR 62.16. This policy was aimed at achieving a revenue target of LKR 140 billion from cigarette excise taxes. However, projections indicate that this 20% tax hike will not suffice, leading to a shortfall of LKR 48 billion. To meet the revenue goal, a drastic 147% increase in excise taxes would be required.