The Excise Department has reported a significant drop in beedi manufacturer license renewals and revenue collection following the recent increase in the Tobacco Tax (TT) on beedi products. According to the Commissioner General of Excise, while 1,140 licenses were issued to beedi manufacturers last year, only 840 have renewed their licenses so far this year, following the tax hike.
Revenue from the beedi sector has also fallen short of expectations. Only Rs. 1,055 million was collected last year against a target of Rs. 2 billion, and just Rs. 469 million has been collected so far this year. The Commissioner General attributed the shortfall to widespread smuggling of beedi products and inadequate enforcement of tax regulations.
These developments were discussed at a recent meeting of the Committee on Public Finance, chaired by Hon. Member of Parliament Dr. Harsha de Silva. At the meeting, the Committee approved Extraordinary Gazette Notification No. 2430/16 dated April 1, 2025, which increased the Tobacco Tax on beedi from Rs. 2 to Rs. 3 per stick, effective April 2, 2025. The tax increase was initially announced in Budget 2025 and implemented under the Tobacco Tax Act, No. 8 of 1999, through an Order issued by the Minister of Finance in accordance with Section 2 of the Act.
Committee members raised concerns that the increased tax burden may be pushing legitimate manufacturers out of the legal market and fueling illicit trade. They cited economic principles suggesting that excessive taxation can reduce compliance and drive businesses underground. As a potential solution, some members proposed reducing the beedi tax to encourage legal manufacturing and improve revenue collection.
The Committee also emphasized the need for scientific evidence to support any future tax policy decisions, especially those aimed at achieving specific revenue targets.
The meeting was attended by Members of Parliament Ravi Karunanayake, Shanakiyan Rasamanickam, Dr. Kaushalya Ariyarathne, Arkam Ilyas, and Nimal Palihena.
