• Legal cigarette market only 20% of combustible market, with ‘beedi’ sector growing
• Unpredictable tax hikes and regulatory issues fuel illicit trade growth

Sri Lanka has lost an estimated tax revenue of Rs. 118 billion due to illicit cigarettes and growth in ‘beedi’ in the domestic market in 2024, Ceylon Tobacco Company (CTC) said.

As estimated by CTC, the legal cigarette market accounted for 20% of the total combustible market where 9.7 billion sticks were consumed in 2024, while the beedi market and illicit (smuggled cigarettes) market accounted for 68% and 12% of consumed sticks respectively.

The legal tobacco industry, represented by CTC, was the single largest tax contributor to the government, accounting for approximately 6% or Rs. 161.1 billion of total tax revenue in 2024.

The CTC said that its total tax contribution to the government over the last 10 years has been Rs. 1.2 trillion, while the continued growth in the illicit market however continues to deprive the Government of significant tax revenue.

“The under-regulated beedi market too has witnessed an approximate growth of almost 100% since 2015, further reducing the government’s revenue earning potential,” the CTC said in its 2024 annual report.

Moreover, CTC said that improving disposable income levels resulting from the improving economic conditions are expected to positively impact demand conditions in the medium term.

“However, the industry continues to grapple with significant challenges, including unpredictable and unsustainable tax increases and regulatory hurdles,” the CTC said, adding that these factors are likely to further shift consumer preferences away from legal cigarettes and exacerbating the growth of illicit trade.

CTC also said that successive excise increases including the 14% increase in January 2024 resulted in a further increase in the price of legal cigarettes, adversely impacting CTC’s volumes during the year.