• Fearmongering tactics by beedi manufacturers hinder tax collection
• Widespread smuggling of beedi paper complicates tax enforcement
• New beedi transport licence to combat tax evasion strictly monitored
• Increased beedi consumption spurs need for effective tax regulation

The Excise Department continues to face difficulties in collecting the new beedi tax introduced in January 2023 due to actions of beedi manufacturers who have engaged in fearmongering tactics to create opposition to the collection of taxes on beedi sticks.

Speaking to The Sunday Morning Business, Commissioner General of Excise M.J. Gunasiri stated that the collection of the new beedi tax had proven to be more difficult than expected due to the conduct of manufacturers and also due to the fact that the industry was much larger than previously anticipated. 

Elaborating further, he revealed that the structure of the local beedi industry involved the main manufacturers subcontracting the process of rolling beedi sticks to beedi rollers. 

However, once the Excise Department started collecting the beedi tax from manufacturers, they had engaged in a fearmongering campaign, alleging that the beedi tax was also applicable to the beedi rollers while accusing the department of depriving the rollers of their livelihood.  

“Beedi manufacturers are attempting to associate themselves with the beedi rollers in order to avoid paying the tax. We have never asked the rollers to pay a tax; we are only asking the manufacturers to pay. But the manufacturers are making the rollers afraid, alleging that they will be subject to a large tax,” he stated.

Gunasiri stated that one of the main difficulties faced in taxing the beedi industry was the widespread practice of smuggling beedi paper to Sri Lanka through boats or through the Customs.

“Sri Lanka’s demand for beedi sticks requires about 2 million kg of beedi paper per annum. However, only around 300,000 kg have been officially imported. The rest has been smuggled through boats or Customs. Because of this, we are struggling to collect the tax.”  

The Commissioner General further stated that in order to combat such tax evasion tactics of beedi manufacturers, the department had introduced a beedi transport licence. However, this development has been widely opposed by manufacturers, who have refused to comply.

“However, we have informed our officials to monitor these transport licences strictly from July onwards,” he said.  

While Sri Lanka has imposed taxes on raw materials required for beedi sticks, the final beedi product had not been previously taxed until January 2023. The need to tax beedi sticks has become vital as tax hikes on cigarettes have led to increased demand for beedi sticks, which are more harmful to one’s health than cigarettes.

While Section 2(1) of the Tobacco Tax Act clearly provides that beedi sticks should be taxed, neither the Excise Department nor previous governments had undertaken to ensure this. Consequently, the illicit beedi industry thrived in the shadows, unchecked by any regulation or taxation. 

Section 2(1) of the Tobacco Tax Act notes: “There shall be charged, levied, and paid on every cigarette, cigar, beedi, and every kilogramme of pipe tobacco manufactured in Sri Lanka, a tax (hereinafter referred to as the ‘tobacco tax’) at such respective rates as may be fixed by the minister by order published in the gazette.”