The legal cigarette trade paid the Sri Lankan government about Rs. 173.8 billion in 2025 — roughly six times the Rs. 29 billion Ceylon Tobacco Company retained as profit — and British American Tobacco is using that ratio to argue that further excise increases would cost the Treasury revenue rather than raise it, the Daily FT reported on Monday in an exclusive interview by Nisthar Cassim with BAT Head of Fiscal Policy Prashanth Karuthasen, who visited Colombo recently.
CTC is BAT’s Sri Lankan subsidiary. What follows is the industry’s case, and is reported as such.
The numbers the industry is putting forward
Karuthasen’s figures describe a shrinking legal market inside a roughly flat total one.
| Sticks per year | Share | |
|---|---|---|
| Legal cigarettes | 1.92 bn (2025) | ~20% |
| Illicit cigarettes | 0.50 bn | ~6% |
| Beedi | 6.50 bn | ~73% |
| Total combustible | ~8.9 bn |
Legal volumes have fallen from close to 3 billion sticks in 2022 to just under 2 billion — about a third in three years — which Karuthasen attributes to “stretched consumer affordability driven by excise-led increases in price.” Government revenue from the sector nonetheless rose nearly 8%, from about Rs. 161 billion in 2024 to Rs. 173.8 billion in 2025, and is Rs. 63 billion higher than in 2021. The 2025 total is put at nearly 4% of all government revenue.
A separate Rs. 25 billion came from the 45% corporate income tax rate applied to tobacco, which Karuthasen called one of the highest in the world. That figure is internally consistent: Rs. 25 billion of tax on top of Rs. 29 billion retained implies pre-tax profit of about Rs. 54 billion, and Rs. 25 billion is 46% of it.
“The high price and tax differential between illicit and legal products is an incentive for smugglers to operate. Whilst a higher level of enforcement helps, the profit incentive has to come down sufficiently in order to deter smuggling,” Karuthasen said.
He cited Malaysia, which meets the World Health Organization’s tax recommendation and has a 60% illicit share, alongside the UK at about 32% and Australia at more than 60%. What works in fiscal policy, he said, is “transparency, moderation, and predictability.”
The substitution is overwhelmingly to beedi, not to smuggled cigarettes
The interview’s own figures carry a distinction its framing blurs. Of the roughly 7 billion sticks consumed outside the legal cigarette market, 500 million are illicit cigarettes and 6.5 billion are beedi — a ratio of 13 to one. Beedi is a legal, separately and far more lightly taxed product in Sri Lanka, not contraband.
So the volume moving away from taxed cigarettes is going predominantly to a cheaper legal substitute. That is still a revenue problem, but it is a problem of relative tax treatment between two lawful products rather than of smuggling, and the two call for different remedies — the first a question of how beedi is taxed, the second a question of enforcement. Karuthasen distinguishes the two in his answer; the headline ratio does not.
Where the industry’s tax figure meets the think-tank’s
Karuthasen said that when all taxes are counted “together with corporate taxes,” tax accounts for more than 80% of the retail price, that the global average cigarette tax incidence is around 58%, and that Sri Lanka is “materially higher than the global average” and fifth in the Southeast Asia region.
In July this year Verité Research put Sri Lanka’s cigarette tax incidence at 67% — below the WHO’s recommended floor of 75% of retail price, and down from 74% in 2018 — and estimated that the gap had cost the Treasury more than Rs. 25 billion since 2025, about Rs. 17.3 billion a year at then-current rates.
Both cannot be read as the same measurement, and the difference is in what is counted. The WHO’s benchmark measures taxes embedded in the retail price. Karuthasen’s “>80%” is explicitly inclusive of corporate income tax, which is levied on company profit rather than carried in the shelf price. On the WHO basis the two accounts are not in conflict so much as anchored to different reference points: Sri Lanka is above the global average of 58%, which is the industry’s comparison, and below the WHO recommendation of 75%, which is Verité’s. Neither figure is wrong; they answer different questions, and no filing sets them side by side.
Opposition Leader Sajith Premadasa has separately alleged that cigarette tax concessions cost the Treasury Rs. 17.3 billion while household taxes rose.
The timing
The interview was published on 12 October. The same day, young campaigners from all 25 districts gathered in Colombo to demand enactment of the Tobacco-Free Generation policy, which would bar tobacco sales to anyone born in or after 2010, and said they wanted protection from “the influence of the tobacco industry.” That proposal has sat with the Health Ministry since April. The Institute of Policy Studies has attributed about 12,300 deaths a year in Sri Lanka to tobacco.
No health authority, the National Authority on Tobacco and Alcohol, the Finance Ministry or the Excise Department is quoted in the filing.
Not reported
The interview does not identify the source of the consumption estimates — whether they are BAT’s own, industry-commissioned or official — and the 500 million illicit and 6.5 billion beedi figures are given as “estimates” without attribution. No comparable official series is cited.
It does not say what excise rate the industry considers sustainable, whether BAT has made a formal Budget 2027 submission, or whether the government has responded. Sri Lanka’s obligations as a party to the WHO Framework Convention on Tobacco Control are not addressed, and no public-health estimate of the cost of consumption is set against the Rs. 173.8 billion revenue figure.
This report rests on a single verified newsroom. A search of the other verified Sri Lankan outlets returned only earlier editions on CTC’s finances, which is consistent with the Daily FT describing the interview as exclusive to it.