The authorities reported yesterday the Excise Department’s Special Investigation Unit has seized a total of 2,030,000 sticks of illegally imported cigarettes, estimated to be worth around Rs. 30 million, in the Wellampitiya area. It was no surprise that, amongst the five suspects, there were three employees of the Port Authority. The illegal importation and sale of cigarettes have reached unprecedented levels, fueled by a combination of high taxes, economic hardship, and increasingly sophisticated smuggling networks.

In 2024 alone, Sri Lanka Customs detected nearly 19 million illicit cigarette sticks, a figure that only hints at the true scale of the problem. It is estimated that over a billion illicit cigarettes flooded the market last year, pushing the share of illegal cigarettes to 12% of all smoked tobacco products—up from 9% the previous year. Legal cigarette sales have shrunk to just 20% of the total market, while the illicit and under-regulated beedi sectors continue to expand.

This surge is not merely a matter of lost sales for the legal industry. The Government’s own revenue is under siege: in 2024, Sri Lanka lost an estimated Rs. 118 billion in tax revenue due to illicit cigarettes and the growth of the beedi market. The legal tobacco industry, once a major contributor to state finances, now finds its position eroded by a parallel market that thrives on tax evasion and regulatory loopholes.

The answer lies in a complex interplay of policy and circumstance. Successive excise tax hikes—intended to curb smoking and boost revenue—have inadvertently widened the price gap between legal and illegal cigarettes. For many Sri Lankans, especially those facing stagnant wages and rising living costs, the allure of cheaper, untaxed cigarettes is hard to resist. Smugglers exploit this demand, using increasingly creative methods to bring contraband into the country, from hidden compartments in shipping containers to small-scale air freight and land-based operations. Further, the sheer volume of imports made it difficult for Customs officers to inspect every shipment for contraband, such as cigarettes, thoroughly. While scanning equipment and intelligence-sharing mechanisms have improved in recent years, they are still not foolproof. Smugglers constantly adapt their methods to exploit gaps in enforcement. Additionally, the lack of capacity among some terminal operators to handle the increasing volume of containers has compounded the problem. With more goods being imported into the country, the storage capacity for seized goods has become a bottleneck. The Customs also lack an effective rummaging capacity within the Port and anchorage, and the Sri Lanka Coast Guard has been found to be under-equipped and resourced to effectively patrol the long coastline through which illicit products make landfall. Terminal operators are often ill-equipped to handle the surge in container traffic, leading to delays and inefficiencies in Customs processing.

The Government’s response, while strong in some respects, is hampered by the sheer volume of goods entering the country and the sophistication of smuggling networks. Customs officers, incentivised by a Rs. 5 per seized cigarette reward, have made significant seizures, but the flow continues unabated. Sri Lanka has a serious border control problem, a porous border and weak entry point control, made evident by the arrest of the Port worker suspects, which underlines one of the issues.

The consequences of this illicit trade extend far beyond lost revenue. Smuggled cigarettes evade statutory health warnings and quality controls, making them more dangerous to consumers. The Institute of Policy Studies (IPS) warns that these products are often more accessible to young people and low-income groups, undermining years of progress in tobacco control. Moreover, the illicit trade is linked to broader criminal activity, including narcotics and human trafficking. The low risk and high reward of cigarette smuggling—penalties remain modest compared to the profits—make it an attractive venture for organised crime.

Sri Lanka needs a multi-pronged approach to combat the issue. First, tax policy must strike a balance: while high taxes deter consumption, they must not be so punitive as to drive consumers en masse to the black market. Second, enforcement must be strengthened through better technology—such as AI-powered scanners—and greater institutional coordination. In doing so, the State must also improve law enforcement compliance and integrity checks to weed out those staff vulnerable to being exploited for illicit operations. Third, public awareness campaigns should highlight the dangers of illicit cigarettes, both to individual health and the Nation’s economic well-being.