Sri Lanka witnessed a notable downturn in hard liquor and cigarette consumption throughout 2023, attributed to substantial hikes in excise duties, signaling a shift in consumer spending habits.
According to recent data, hard liquor consumption plummeted by 24.3 percent year-on-year to 20.4 million litres in 2023, following a sharp 40 percent increase in excise duties.
This marks a significant drop compared to consumption levels a decade ago, highlighting changing consumer behaviors in response to taxation policies. In contrast, malt liquor (beer) consumption saw a milder decline of 3.5 percent year-on-year, totaling 13.6 million litres.
Revenue generated from liquor excise duties grew modestly by 3.1 percent to Rs. 170.3 billion in 2023, up from Rs. 165.2 billion the previous year.
Meanwhile, cigarette consumption also saw a steep decline, falling by 18 percent year-on-year to 2,303 million sticks in 2023. The illicit and beedi market, however, saw an increase, capturing a 6 percent larger market share, accounting for 76 percent of all smoking tobacco products sold.
Excise tax collections from cigarettes increased by 13.8 percent year-on-year to Rs. 118.5 billion.
Capital Alliance noted, "Despite their popularity, recent excise duty hikes have driven down volumes of liquor and cigarette consumption. With multiple tax increases since 2022, consumer spending trends are visibly shifting."
Although the Excise Department anticipated collecting Rs. 182 billion from excise duties on tobacco and liquor, actual collections amounted to Rs. 171.27 billion.
Starting January 1 this year, the government implemented a 14 percent increase in excise duties on all excisable goods, introducing an annual inflation adjustment. However, some experts, like JB Securities Limited CEO and Advocata Institute Chairman Murtaza Jafferjee, argue against simply indexing cigarette and alcohol taxes to inflation, emphasizing the need for a nuanced approach considering revenue elasticity.
