ECONOMYNEXT – Sri Lanka has seen a steep increase in smuggled cigarettes in 2024, as legal sales fell in 2024, Ceylon Tobacco Company said, while beedi sales have seen long-term growth, Ceylon Tobacco Company has said.
“The widening price gap between legal cigarettes and their illicit counterparts, have contributed to a disproportionate growth in the illicit cigarette market,” CTC told shareholders in the annual report.
“Meanwhile, the expansion of the under-regulated beedi market – driven by increasing price differentials between cigarettes and beedi – also continues to impact sales volumes, particularly within the lower end of our product spectrum.
“These trends not only affect CTC’s volumes but also result in significant tax revenue losses for the government.”
The CTC said in 2024 the total market for smoked tobacco, made up of legal cigarettes, smuggled products and beedi was 9.7 billion sticks.
Legal sales fell to 20 percent of the total or 1.94 billion sticks in 2024 from 24 percent in 2023 which was 2.3 billion sticks based on extrapolated data in previous annual reports (extrapolated data in light blue in table).
The CTC estimated that the smuggled cigarettes went up to 12 percent of the total from 9 percent following the tax incentives given by the government and loss of purchasing power from recent currency crises.
After each currency crisis, taxes were hiked.
Sri Lanka’s macroeconomists have created a series of currency crises from 2015 in particular, printing money to boost growth (target potential output) and high levels of inflation (flexible inflation targeting), without a war, eventually ending in default in 2022.
Meanwhile, according to CTC estimates, illegal cigarettes are claimed to have grown to 1.1 billion sticks in 2024 from 0.89 billion sticks in 2023.
CTC has not said why beedi sales fell, and whether there was a shift from beedi to smuggled ciggarettes. According to legal alcohol industry, there has been some returning demand to the legal sector in the December quarter as inflation fell in 2024 and incomes improved.
CTC has said that smuggled cigarette volume fell to 630 million sticks in 2021 from 730 million in 2020 when authorities seized more than 200 million sticks in the year including one shipment of 21 containers. The following year 24 million sticks were seized.
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In Sri Lanka, a smuggled cigarette brand called ‘Manchester’, is widely available.
Following a doubling in import duty in the Maldives, reports said detections of Manchester are being made in that country and tax revenues have plunged suddenly.
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High taxes and revenue losses are also encouraged by international agencies in some countries, though analysts say high taxes and economic controls of all kinds encourage disrespect for the law and corruption.
There have been some anecdotes suggesting that Maldives imports are smuggled to third countries, like Sri Lanka through what some euphemistically call the ‘muhuda meda market’ (the market in the middle of the sea).
Gold is similarly smuggled into high tax South Asian countries after macro-economists printed money and slapped import duties.
The beedi market has expanded 100 percent since 2025, “further reducing the Government’s revenue earning
potential.”
Meanwhile the CTC said beedi, which is a lightly taxed legal product, has taken up the lost market share also. CTC has claimed that beedi sales have more than doubled since 2015/2016.
That was the time macro-economists started to steeply depreciate the rupee under flexible exchange rate triggering loss of real incomes, social and political unrest, after the IMF gave technical assistance to calculate potential output, and ‘data driven’ monetary policy, rejecting classical economics according to critics. (Colombo/Apr26/2025)
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