Beedi tax hike misses revenue target as smuggling, license drop take toll

• The revenue this year so far stands at just Rs. 469 mn
• Only 840 of the 1,140 licensed beedi manufacturers renewed their licenses this year following the tax increase
• Excise Department attributes the revenue gap to large-scale beedi smuggling and insufficient enforcement actions

The latest increase in tobacco tax on beedi products has failed to meet its intended revenue targets, with authorities pointing out a drop in licensed manufacturers and rising illicit trade as key reasons for the shortfall. The Committee on Public Finance recently approved an Extraordinary Gazette that raised the Tobacco Tax on each beedi stick manufactured locally from Rs. 2 to Rs. 3, effective from 2 April. The hike was proposed in the 2025 Budget and implemented under the Tobacco Tax Act, No. 8 of 1999.

Despite the move, the Excise Department reported that only Rs. 1,055 million was collected last year against a target of Rs. 2 billion. The revenue this year so far stands at just Rs. 469 million.

The Commissioner General of the Excise Department told the Committee that only 840 of the 1,140 licensed beedi manufacturers renewed their licenses this year following the tax increase. He attributed the revenue gap to large-scale beedi smuggling and insufficient enforcement actions. Members of the committee raised concerns that the tax hike may be pushing legal businesses out of the formal economy. 

“Higher taxes may drive legitimate businesses underground,” they said, urging policymakers to reconsider the structure of tobacco taxation in the interest of curbing illegal activity and protecting revenue streams.

It was also proposed that future tax changes be underpinned by data to ensure intended outcomes.
“Any future tax adjustments be supported by scientific evidence to demonstrate their effectiveness in meeting revenue targets,” committee members said.

The Committee on Public Finance was chaired by MP Harsha de Silva and attended by MPs Ravi Karunanayake, Shanakiyan Rasamanickam, Kaushalya Ariyarathne, Arkam Ilyas, and Nimal Palihena.