As Sri Lanka searches for every possible source of revenue to sustain its fragile economic recovery, a new analysis suggests billions of rupees are quietly slipping through the Treasury’s fingers—not because of tax evasion, but because cigarette taxes remain below internationally recommended levels.
Verité Research estimates that the Government has lost more than Rs. 25 billion in potential cigarette tax revenue since 2025, with over Rs. 8 billion forfeited during the first half of 2026 alone.
The figures accompany the launch of the Cigarette Tax Leakage Tracker, a publicly accessible online dashboard that estimates, in real time, the revenue foregone as a result of current tobacco taxation policies. The platform has been developed to improve transparency and encourage evidence-based policymaking.
At the centre of the debate lies a key benchmark established by the World Health Organization. WHO recommends that taxes comprise at least 75 percent of a cigarette’s retail price, arguing that such levels simultaneously discourage tobacco use and optimise tax collection.
Sri Lanka nearly achieved that target in 2018, when taxes accounted for 74 percent of retail prices. Since then, however, the effective tax share has fallen and remained at approximately 67 percent from 2025 onwards, according to Verité Research.
The apparent policy drift comes at a critical moment. The Government has repeatedly emphasised the importance of strengthening domestic revenue under ongoing fiscal consolidation measures while seeking to balance social spending, debt obligations and economic growth.
Public finance analysts note that excise taxes on tobacco products have historically provided governments with a stable source of revenue because cigarette demand generally declines more slowly than price increases. Consequently, moderate tax hikes often generate additional government income while delivering long-term public health benefits through lower smoking prevalence.
Health advocates argue that increasing tobacco taxes remains among the most cost-effective interventions available to governments. Reduced smoking rates not only improve health outcomes but also lessen future expenditure on treating tobacco-related diseases, easing pressure on public healthcare systems.
Critics, however, caution that tax policy cannot be viewed in isolation. Concerns persist over illicit trade, counterfeit products and cross-border smuggling, issues that require stronger customs enforcement and regulatory oversight alongside any future tax increases.
The introduction of Verité Research’s live tracking platform provides an unprecedented level of transparency by allowing users to monitor estimated revenue losses as they accumulate. Such publicly available data may intensify pressure on policymakers to justify existing tax levels or reconsider future excise policies.
With cigarette taxation sitting at the intersection of public health, fiscal policy and economic recovery, the findings are likely to fuel renewed debate among government officials, economists and health advocates. As Sri Lanka continues searching for sustainable revenue sources without imposing broad-based tax burdens on households, tobacco taxation may once again emerge as one of the country’s most closely watched policy battlegrounds.