Prime Minister Ranil Wickremesinghe said on May 25th that his government will present an interim budget within six weeks. The Prime Minister said that the interim budget would be presented as a relief budget. He said the money allocated for infrastructure development would be used for a two-year relief program.
The country is unfortunately bankrupt at the moment. Although the intention is to use the allocated financial reserves for relief budgets, there is no rupee in the country. The money printing limit has also been exceeded.
Sri Lanka has the third highest inflation rate in the world, according to the latest publication of the world-renowned inflation chart introduced by Johns Hopkins University professor Steve Hank. Life in Ghana, Syria and Sudan is better than us. It is against this backdrop that the Prime Minister is bringing in a new interim budget. Against the backdrop of a two hundred per cent price hike from rice to salt in the country. In an environment where there are indications that people will have to wait in line for a kilo of rice.
The country is falling into such an abyss that taxes are being vu=lgarly concealed in areas that could create a solid foundation for development.
Meanwhile, more than 23 billion rupees in tax revenue has been betrayed. The country saw in the last budget that the tobacco company had escaped from paying that tax by setting a price on the vile state officials and politicians who run the country’s economy.
This note is to emphasize the crucial need to recover this missed national wealth, if this new government presents a new interim budget.
Cigarette tax game
This vulgarity was decisively expressed by the then Finance Minister Basil Rajapaksa who last presented a budget. Announcing the 2022 budget, he increased the price of a cigarette by Rs. 05 on 12.11.2021. The ruling party ghosts knocked on the table and expressed their gratitude. However, subsequent analyses reveal how he buried the national wealth through that statement.
Instead of increasing the excise duty on cigarettes by five rupees, increasing the price of a cigarette by five rupees would add about Rs. 5 billion profit to the tobacco company, creating a situation where the country would lose about Rs 5.5 billion.
To address the financial crisis in Sri Lanka, the Alcohol and Drugs Information Centre (ADIC) proposed before the budget that raising the excise duty on cigarettes by 10 rupees could save the Treasury 23 billion annually.
Despite repeated assurances, this has led to an increase in the price of cigarettes and the creation of a “creative” mechanism by which companies can use the recommended tax formula to further increase their profits.
The creative mechanism enriched the cigarette companies
According to this mechanism, it is the price of cigarettes, not the tax, that increases. When calculating the tax levied on these rising prices, 49 per cent goes to the government. Fifty-one per cent goes to the Ceylon Tobacco Company, which is more than 80 per cent owned by the British American Tobacco Company.
The average annual cigarette consumption in Sri Lanka is 2.3 billion. Thus, the 51 per cent of the Rs. 11.5 billion additional revenue to the industry by the Rs. 5 increase, adds to the profit of the Ceylon Tobacco Company.
Accordingly, only Rs. 5.5 billion goes to the government treasury. This is despite the fact that there is a clear way to receive at least Rs. 11 billion directly to the government treasury.
Despite the tax payments the tobacco companies are claiming, there is a killer hidden in the numbers. It ranges from the soil pollution from tobacco cultivation to the high cost of health care including the death of respiratory diseases, including cancer. According to the world’s mediocre definitions, the tobacco industry itself is a cancer to the socio-economic system.
As a result, the World Health Organization is concerned about discouraging tobacco use. The World Health Organization (WHO) sees the increase in taxes on cigarettes as a powerful tool in this journey. It is an option that has been successful in the world so far. On the other hand, it is a reason to fill state treasuries.
Despite such a background, there is a lot of talk that the Ministry of Finance officials had initially devised this pricing scheme with the intention of benefiting the government as well as the tobacco companies.
Basil was angered by the questioning in Parliament
Buddhika Pathirana, the Matara District Parliamentarian of Samagi Jana Balawegaya first brought this matter to the attention of the country. He made the remarks during the Finance Ministry Expenditure Head Debate during the Budget Debate recently. It angered Finance Minister Basil Rajapaksa. Buddhika Pathirana pointed out that the length of cigarettes in Sri Lanka is taken into consideration when determining the tax and it is levied under four categories of lengths 60, 68, 75 and 85 mm.
As per this year’s budget, the tax on 60mm cigarettes, that is, without a filter, was reduced by about 50% as the price of other cigarettes increased. The MP alleged that the government had amended the tax to benefit the cigarette companies. The new price of this cigarette is 10 rupees.
He said that the reason for this situation was that a significant number of low-income earners in the country are using these filter-less cigarettes and more consumers were likely to enter the market due to the increase in prices. As a result, cigarette companies’ revenues increased as taxes were collected.
Tobacco Company Investments
Tobacco companies invest in the poorest countries in the world to earn the most profits. MP Buddhika Pathirana pointed out in Parliament that the reason for this was the sharp decline in smoking in developed countries.
The situation in Sri Lanka is not much different from the rest of the world. According to ADIC data, cigarette sales in Sri Lanka have dropped by about 50 per cent in the past 10 years. Their option is to entice teenagers and the poor to smoke with increasingly cheaper options in order to retain the profits they lose.
Arbitrary decisions
According to reports, the National Authority on Tobacco and Alcohol was not even aware of the revision of cigarette prices in the last budget. It appears that the decision to paralyze this nation was merely a ploy by a few officials, led by the Ministry of Finance.
It is not by chance that a new government is elected for the country. The government elected from the ashes of shattered citizen aspirations has no moral right to perpetuate the heinous thefts committed by the corrupt governments of the past. If a new budget is presented, the tax evaders of those governments should open up and recover the hidden taxes. It can start with the cigarette tax. It should no longer be hidden, and should no longer be a source of black money for a handful of politicians and government officials.
The budget also included positive proposals on how the cigarette tax should be amended. Now those important but hidden suggestions should be taken out. On the one hand, it is ironically fated that cigarettes are the criterion for determining how honest the Prime Minister is as the Minister of Finance.
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