Sri Lanka taxes hit drinkers, smokers and drivers

Nov 08, 2007 (LBO) – Sri Lanka’s cash strapped government is taxing booze, smokes and cars again to boost government revenues and finance subsidies, the 2008 budget presented to parliament showed. “We have sharply increased taxes on alcohol and cigarettes to discourage consumption,” the budget speech tabled in parliament by President Mahinda Rajapakse said.

The new proposals would increase the price of a bottle of liquor by 35 rupees and a cigarette by two rupees.

Another charge called the economic service charge on the sale of liquor and motor vehicles will also be increased to one percent from 0.5 percent.

The government expects to rake in 32.4 billion rupees from smokers by the end of this year and 34 billion in 2008.

The tax flow from alcohol this year is 25 billion rupees. In 2008 27.1 billion rupees is expected.

Alcohol and cigarette taxes, usually called ‘sin taxes’ have been favourite targets of the exchequer.

The license to sell liquor had been increased ten times to 10,000 rupees. Sri Lanka’s politicians usually hand out liquor licenses as political favours to their henchmen.

Some alcohol retailers make good money selling ‘counterfeit’ alcohol.

Meanwhile a series of new taxes would be slapped on cars.

A 15 percent surcharge has been imposed on the existing import duty. Already some cars attract, taxes as much 235 percent of its value.

Another levy of up to 7.5 percent of the value of a vehicle called a provincial development levy would be slapped on vehicles depending on their engine capacity.

Last year the government had raised 21 billion rupees from imported cars. However state workers were given a chance to buy tax slashed vehicles.

In a bizarre move however the government said it would cut taxes on fuel. The lost revenue would then be funded by taxes on other goods.

Sri Lanka has spent billions on fuel subsidies in the past three years, putting massive pressure on government finances. .