SL budget proposals positive for large spirit makers -Fitch
View(s):The Sri Lankan government’s proposals to impose a minimum excise tax on liquor and beer manufacturers and tighten issuance of liquor licences are positive for larger spirit manufacturers, including Distilleries Company of Sri Lanka PLC (DIST), according to Fitch Ratings.
The impact is likely to be neutral for beer manufacturers, including market leader Lion Brewery, it said in a statement.
The proposals, which target manufacturers and retailers of alcoholic beverages to address problems of tax evasion, will reduce the number of players and act as barriers to entry.
The new minimum excise tax of Rs. 200 million is aimed at reducing the number of smaller players, especially in the spirits market. Based on the latest reported data, the majority of licensed liquor manufacturers do not produce enough to meet this proposed minimum monthly excise tax.
The four bigger companies in the spirits market, however, already pay more than Rs. 200 million in excise tax monthly and they are likely to dominate the market as smaller players exit.
Fitch estimates the exit of small players could lead to potential market share gains of close to 10 per cent in aggregate for surviving players, based on Excise Department statistics.
“For the beer market, the impact of the proposed excise tax will likely be neutral because of a duopoly structure in the malt beverage segment, with Lion already paying more than the minimum tax while the other player almost meets the minimum amount based on latest published data by the Excise Department,” the statement said.