Tax hikes send cigarette production down 32%

Cigarette production in Sri Lanka has fallen by 32% over the past three years following successive increases in taxes on tobacco products, Deputy Minister of Economic Development Nishantha Jayaweera told Parliament on Thursday (20).

Responding to a question by Kurunegala District SJB MP Dayasiri Jayasekara, Jayaweera said cigarette production had declined from 2.8 billion sticks in 2022 to 1.9 billion in 2025.

He said the Government’s tobacco taxation policy was aimed not only at increasing State revenue but also at reducing healthcare costs associated with tobacco use and addressing its wider socio-economic impact.

Excise duties on cigarettes have been increased four times since 2023. The duty was raised by 20% on January 1, 2023, and by a further 20% on July 1 that year. It was increased by 14% on January 1, 2024, under the inflation indexation mechanism, and by another 5.9% on January 11, 2025.

Meanwhile, VAT was increased from 15% to 18% from January 1, 2024, while the corporate income tax rate was raised from 40% to 45% with effect from April 1, 2025.

The current excise duty structure, introduced on January 11, 2025, is based on cigarette length, with duties ranging from Rs. 26.59 to Rs. 109.95 per cigarette.

Jayaweera said higher tobacco taxes had contributed to a gradual increase in direct and indirect tax revenue while supporting the Government’s efforts to protect public health and improve revenue management.