In 1845 he was knighted and appointed colonial secretary of Ceylon, where he remained till 1850. While he was there, an economic depression in the United Kingdom severely affected the local coffee and cinnamon industry. Planters and merchants clamoured for a reduction of export duties. Tennent therefore recommended to Earl Grey, Secretary of State for Colonies in London that taxation should be radically shifted from indirect taxation to direct taxation, which proposal was accepted. It was decided to abolish the export duties on coffee and reduce the export duty on cinnamon leaving a deficit of £40,000 Sterling which was to be met by direct taxes on the people. This was one of the causes of the Matale Rebellion of 1848.