It appears as if the fractured cabinet was attempting to emulate an Alfred Hitchcock suspense drama over the last couple of weeks. The poser was not the predictability of the price rise in tobacco but rather when it would be imposed. As such, all stakeholders in the industry girded themselves for the cabinet announcement with nail-biting expectancy. The nicotine addicts hoped for a minimal increase that would set them back a buck or two for a stick. But no! A cash-strapped government went over the top with a Rs. 5 increase and an additional Rs. 2 bucks VAT.
For weeks, hoarders kept stockpiling the products and kept praying the pre-Budget 2017 price hike would come sooner to make a huge killing with no foreseeable risk of punitive action. After all, traders had been resorting to the practice for several years on the trot whenever they sniffed a price hike was in the offing. Besides, the artificial shortage that predictably ensued gave them an opportunity to sell a stick at least at five more bucks.
So, the prices of hoarded cigarette sales were increased because of an artificial supply shortage created by wholesalers and distributors. It’s a story with which we’re all only too familiar with while the state does not lift a punitive finger to curb illegal hoarding.
Police or Excise raids were not in evidence anywhere to ferret out the illegally-hoarded caches. The latest report, issued by the World Health Organization states that Sri Lanka has the distinction of selling the highest priced packet of 20 cigarettes in South Asia. Based on market prices for 2016, the price of a packet of cigarettes sold in Sri Lanka has been reported to be Rs. 700, and hiked again by Rs. 7 on Tuesday.
Analysts claim that the situation is nothing but a common pre-budget phenomenon every year as a quarter of business people gain huge profit through hoarding the item ahead of the pre-budget announcement.History is not supposed to repeat itself, particularly if one is willing to learn by one’s own mistakes and the blundering oversights of others. But these doltish politicians never learn!
For instance, Sri Lanka which imposed the world’s highest tobacco tax, even in 2002 learnt a darned good lesson from the elusive black market. The policy boomeranged with smokers switching to cheaper bootleg brands and puffing away like never before. Basically, it was the Treasury that appeared to have suffered a heart attack with the ‘smoke more, pay more’ policy backfiring on the government despite more people smoking cigarettes, but not always the duty-paid brands.
After years of gradually increasing tobacco taxes to take 85 per cent of the retail price of every cigarette, the government then announced a U-turn in its excise tax policy that drastically-reduced cigarette prices by 42 per cent. There was a lesson there but when do our authorities ever learn? When cigarettes are taxed so high, they become unaffordable to many of its addicted patrons and as a result black markets are created.
Advocates for lower-income taxpayers counter that sin taxes affect the poor disproportionately, because they take a larger percentage chunk of income from low-wage earners than from the affluent.
No finance minister has conjured up an inventive or imaginative budget since Dr. N. M. Perera held the portfolio in the 70s. And talk about creative National Budgeting. Former finance minister Dr. N. M. Perera – once dubbed No Money Perera – was able to perfectly balance the budget without a deficit and being a Trotskyite, it was a tremendous achievement. However, that was in another time and place and the scenario has changed so rapidly that no country, by far, runs without a deficit. There was another celebrated instance when Dr. Perera actually reduced the tax on cigarettes during his Budget reading.
That was to teach hoarders cornering stocks of smoke-sticks ahead of the Budget an object lesson. . Soon after the commodity was freely available when he raised the prices by gazette notification. It was a deterrent example the black-market did not recover from for a long time. Why successive finance ministers did not resort to such to such a simple and effective measure to crack-down on hoarders without the least effort is a mystery no less.
The initiative by the Yahapalanaya administration to send the price of ciggies skyrocketing by 90 per cent this week also highlights some hypocrisy, given that the government is as addicted to this tax money as smokers are to nicotine. The government doesn’t want smoking to decline much because if it does, they lose revenue. Ceylon Tobacco Company is the single largest tax payer in Sri Lanka accounting for Rs.91.6 billion in 2015, which is about half of the government’s total tax revenue.
An excessive increase in taxes could reduce consumption resulting in lesser taxes for the Government, analysts have warned. Besides they just might kill the goose that lays the golden egg if the company shuts down. But legislators can only hope to reap cash rewards while punishing smoky pleasures by ignoring history.
The presence of black markets all over the world is evidence that the laws of supply and demand are virtually impossible to defy. When regulation or taxation becomes too high, when supply and demand are way out of balance, or when competition has been too restricted, people will always look for a way to get goods or services cheaper, faster or more easily.
The more a government taxes its people beyond this taxable limit, the more persons turn to corruption as a means of survival. It is impossible for any country to fight corruption successfully when its citizens are reeling under high inflation, high taxation and low income. Consequently they cannot see any legitimate way out of their predicament except to patronize the black market. Oppressive taxation breeds corruption which sets the stage for crime and violence to fuel the resultant negative international image of a country that is significantly dependent on tourism.Basically there is a point beyond which the citizen cannot fork out.
The ongoing anti-smoking campaign is not about public health, drug abuse, or teen smoking. What it is all about is money, control and jurisdiction. What many seem to forget is that demand fuels supply, not the other way around. When big tobacco butts out of the fray and the Treasury kitty is bare, the Government will have no option but to shove their deceitful pipe dreams into their tobacco-less ‘Hookahs’.