“Sri Lanka’s Legal Cigarettes Are Dying — Smugglers and Beedis Are Taking Over!”

 

Sri Lanka’s legal cigarette market has hit an all-time low, with just 20% of the market share in 2024 — a dramatic slide from 24% the previous year — as illicit tobacco and beedi sales surge in response to rising excise duties and widening affordability gaps.

According to the Ceylon Tobacco Company PLC (CTC), illicit cigarette volumes soared by 19.6% year-on-year, reaching 1.16 billion sticks in 2024. This explosion in illegal trade is estimated to have cost the government a staggering Rs. 118 billion in lost tax revenue — a significant blow amid growing fiscal pressure.

“The widening price gap between legal and illicit cigarettes is distorting the market and accelerating the decline of legal sales,” said CTC Chairman Suresh Kumar Shah in the company’s latest annual report.

The total market for combustible tobacco products, including legal cigarettes, illicit sticks, and beedis, contracted to 9.7 billion sticks in 2024, from 9.9 billion the previous year. But this contraction, ironically, only affected legal cigarettes.

While legal sales shrank, the beedi market ballooned, capturing 67% of the market, even though the volume decreased slightly from 6.4 billion to 5.6 billion sticks — a signal that the beedi market is retaining its dominance, especially among price-sensitive consumers.

The illicit cigarette trade now accounts for 12% of the market, up from 9% in 2023, closing in fast on the legal market’s share. The 8% gap between legal and illicit cigarettes is the narrowest in decades, sparking alarm over the growing clout of unregulated tobacco sales.

A Systemic Threat to Revenue and Public Health

CTC has raised red flags about successive tax hikes, which include a 14% excise increase in January 2024 and an additional 3% VAT hike. These measures, they argue, have pushed prices of legal products beyond the reach of average consumers, inadvertently boosting black market activity.

“While the goal of taxation is understandable, excessive and disproportionate tax burdens are pushing consumers to illegal markets and hurting the state,” said CTC CEO Fariyha Subhani, urging "moderate and proportionate tax policies" to sustain legal sales, protect livelihoods, and safeguard vital government revenue.

Despite market challenges, CTC remains Sri Lanka’s single largest taxpayer, contributing Rs. 161.1 billion in 2024 — about 6% of the total government tax revenue. The company also supports over 71,700 jobs across its value chain and injected Rs. 1.4 billion into the rural economy through tobacco leaf sourcing.

Enforcement Gap and Policy Dilemma

Experts warn that weak enforcement against smuggling and informal production of beedi is undermining the formal tobacco sector. The combination of tax-induced price gaps and regulatory loopholes has created a perfect storm for legal cigarettes, making them increasingly irrelevant to a vast section of the population.

With illicit sales rising and the state losing billions in potential revenue, calls are growing louder for rebalancing the tobacco taxation framework before the legal industry is overtaken entirely.

Banning Smoking?

No country in the world has completely banned cigarettes for the entire population yet, but a few have taken significant steps toward phasing them out or heavily restricting their sale.

1. Bhutan – First Country to Ban Sales (2004):

Bhutan became the first country to ban the sale of tobacco products in 2004. However, while the sale was prohibited, personal possession and consumption were still allowed in limited quantities. The government temporarily lifted the ban during the COVID-19 pandemic due to concerns over illegal smuggling and the black market.

2. New Zealand – Generational Ban Attempt:

In 2022, New Zealand passed a law to gradually phase out smoking by banning cigarette sales to anyone born after 2008. This was designed to create a smoke-free generation. The plan also included reducing nicotine levels and limiting tobacco retailers. However, in 2024, a newly elected government repealed this law, citing economic and enforcement concerns.

3. Australia – Strict Tobacco Control Laws:

Australia has not banned cigarettes, but it enforces some of the strictest anti-smoking laws in the world. Measures include plain packaging with graphic health warnings, high taxes, and strong public smoking restrictions. These efforts have significantly reduced smoking rates.

4. Singapore – Tight Regulation and Sales Controls:

Singapore has very strict tobacco control policies. Cigarettes are legal, but personal import of tobacco is banned, and there are high taxes and extensive public smoking restrictions. The country has one of the lowest smoking rates globally.

5. United Kingdom – Proposed Generational Ban:

In 2023, the UK proposed legislation to ban cigarette sales to anyone born after 2009, similar to New Zealand's earlier plan. As of 2025, this law has not yet been enacted but remains under discussion.

While cigarettes remain legal in most countries, several governments have taken strong legislative steps to reduce smoking and, in some cases, plan to phase it out for future generations. Bhutan remains the only country to have implemented a nationwide sales ban, albeit with exceptions for personal use.