A recent hike in the tobacco tax on beedi products has led to a sharp decline in license renewals and revenue collection, the Department of Excise told the Committee on Public Finance (COPF) this week.
The Commissioner General of Excise reported that while 1,140 licenses were issued to beedi manufacturers in 2024, only 840 have been renewed so far this year following the tax increase.
Revenue from the sector has also fallen below expectations, with just Rs. 1,055 million collected last year against a Rs. 2 billion target — and only Rs. 469 million collected to date in 2025.
The revenue shortfall was attributed to a rise in smuggling and weak enforcement of tax regulations, issues exacerbated by the steeper tax rate, the Excise Department said.
The discussion took place at a recent meeting of the COPF, chaired by MP Dr. Harsha de Silva.
The Committee reviewed and approved Extraordinary Gazette No. 2430/16, which increased the beedi tax from Rs. 2 to Rs. 3 per stick, effective April 2, 2025.
The measure, introduced in Budget 2025, was enacted under the Tobacco Tax Act, No. 8 of 1999.
Committee members voiced concern that the higher tax burden is driving legitimate manufacturers out of the regulated market and fuelling illicit trade, a trend consistent with broader economic observations on excessive taxation.
As a possible remedy, several MPs suggested revisiting the tax rate to strike a better balance between discouraging harmful consumption and sustaining legal market activity.
The Committee also called for future tax policies to be backed by data and economic analysis, particularly when aimed at specific revenue goals.
MPs Ravi Karunanayake, Shanakiyan Rasamanickam, Dr. Kaushalya Ariyarathne, Arkam Ilyas, and Nimal Palihena were among those present at the session.
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