The price of tobacco in the Maldives rose sharply by 135.3 percent in the third quarter of 2025, driven primarily by increased cigarette costs following amendments to the Export-Import Act. The changes, which came into effect in November 2024, raised import duties on tobacco and related products significantly.
According to the Maldives Monetary Authority’s (MMA) Q3-2025 quarterly report, annual inflation, measured by the Consumer Price Index (CPI), decelerated to 4.0 percent, down from 4.6 percent in the previous quarter. While inflation eased due to slower growth in the cost of restaurants and café services, major upward contributions came from tobacco prices, food inflation, and dining costs. In particular, tobacco alone contributed 2.1 percentage points to overall inflation during the quarter.
Food and non-alcoholic beverages, the second-largest component of the CPI basket with a 23.5 percent weight, recorded a 4.2 percent increase, contributing 1.0 percentage point to inflation. Costs for restaurant and café services added 0.3 percentage points, partly reflecting the higher import duties. In contrast, energy-related items fell by 13.7 percent, providing the largest downward contribution of -0.8 percentage points, while housing rent remained broadly unchanged.
Import duty collections for the fiscal year have fallen short of projections. While expected to reach MVR 4.6 billion, only MVR 2.9 billion has been collected so far. The Minister of Economic Development, Mohamed Saeed, defended the outcome as a net gain for the country, arguing that the policy prioritises public health over short-term revenue.
Speaking at a press conference on 25 December 2025, he described the policy as a worthwhile trade-off, citing long-term public health benefits. Saeed said that reduced smoking rates would ease pressure on the healthcare system and improve overall community well-being, delivering economic and social gains despite the immediate drop in revenue.
Looking ahead, the government’s revised inflation forecast for 2025 anticipates an average rate of 4.1 percent, up from 1.4 percent in 2024 and slightly higher than the 3.9 percent projected in last year’s budget. The revision accounts for the one-off inflationary impact of the tobacco tax increase and lower household electricity tariffs, while assuming no additional subsidy reforms. With the base effect of the tobacco tax dissipating, domestic inflation is expected to stabilise at 1.1 percent in 2026.
The MMA report highlights that, despite the surge in tobacco prices, other sectors such as food and dining contributed moderately to inflation, while falling energy prices provided relief to households. The government maintains that the policy aligns with broader public health and economic objectives.
