By The Pulseline News Desk
Sri Lanka is leaving billions of rupees on the table every year – not because of weak tax collection, but because cigarette taxes remain below the level recommended by the World Health Organisation (WHO).
According to Verité Research, the country has lost more than Rs. 25 billion in potential tax revenue since 2025 due to cigarette taxation falling short of the WHO’s recommended benchmark. In just the first six months of 2026, the Government is estimated to have foregone more than Rs. 8 billion in potential revenue.
The figures have renewed debate over whether Sri Lanka is missing a valuable opportunity to strengthen public finances while advancing public health objectives.
A benchmark yet to be reached
The WHO recommends that taxes account for at least 75% of the retail price of cigarettes, arguing that higher tobacco taxes are among the most effective measures to reduce smoking while generating government revenue.
Sri Lanka came closest to meeting this standard in 2018, when taxes represented 74% of the retail price of cigarettes. Since then, however, the tax share has gradually declined, settling at 67% since 2025, according to Verité Research.
The think tank argues that this gap has translated directly into forgone government revenue, even as the country continues to face significant fiscal pressures and seeks sustainable sources of income.
Tracking the cost in real time
To illustrate the scale of the issue, Verité Research has launched the Cigarette Tax Leakage Tracker, an online dashboard that estimates the amount of revenue lost because cigarette taxes remain below the WHO benchmark.
Available through the organisation’s PublicFinance.LK platform, the tracker updates in real time, providing minute-by-minute estimates of the fiscal losses associated with current cigarette tax policy.
The initiative is intended to improve transparency and provide policymakers, researchers and the public with a clearer picture of the financial implications of tobacco taxation decisions.
More than a revenue issue
The debate over cigarette taxation extends beyond government finances. Public health experts have long argued that increasing tobacco taxes is one of the most effective ways to discourage smoking, particularly among young people and lower-income groups who are generally more sensitive to price increases.
Higher prices can reduce cigarette consumption, lower smoking initiation rates and encourage existing smokers to quit. At the same time, governments can generate additional revenue that can be invested in healthcare, education or other public services.
The WHO has consistently identified tobacco taxation as a policy that delivers both health and economic benefits, making it a key component of global tobacco control strategies.
Fiscal pressures and policy choices
Sri Lanka’s public finances remain under pressure as the Government continues economic recovery efforts and seeks to improve revenue collection. While tax reforms have focused on broadening the tax base and strengthening compliance, tobacco taxation remains an area where analysts believe additional gains are possible.
Verité Research’s estimates suggest that maintaining cigarette taxes below internationally recommended levels carries a measurable fiscal cost. Whether policymakers choose to close that gap will depend on balancing revenue considerations, public health priorities and broader economic policy objectives.
For now, the newly launched Cigarette Tax Leakage Tracker provides a visible reminder that every passing day adds to the estimated revenue forgone – raising fresh questions about whether Sri Lanka can afford to leave billions of rupees uncollected while confronting ongoing fiscal and healthcare challenges.
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