SL only place where beer tax exceeds hard liquor tax
View(s):Sri Lanka now has the unique distinction of being the only country in the world where the tax on beer exceeds that of spirits when calculated on the basis of per millilitre of alcohol, a Lion Brewery PLC statement says. The company saw a turnover of Rs. 18.93 billion for the six months ended 30th September 2015 which is an improvement of 32 per cent on the same period of the previous year. The company has said that this increase was driven by two excise duty revisions that came into play in October 2014. Of these, the second revision was to enable the government to re-coup VAT from which the alcohol industry was exempted.
The company said that although not stated, the reason behind this so called exemption was to prevent the industry from claiming input credit. “Thus in practical terms this exemption translated into a further tax on the industry, the impact of which, during this first 6 months, was approximately Rs. 418 million.”As at 30th September when the quarter closed, it seemed that the beer industry was stifled in every possible way from a tax perspective, the release said, adding that excise duty were unreasonably high in comparison to spirits, input VAT credit was not available and corporate tax was at 40 per cent a 43per cent premium over other types of businesses.
“But on 2nd October in a shocking policy move, the Government increased the excise duty on mild and strong beer by 27 per cent and 32 per cent respectively whilst subjecting the arrack industry to a relatively minor 7 per cent adjustment. “This is a clear indication that the relevant authorities prefer to drive the consumption of spirits over milder varieties of alcohol notwithstanding the impact it will have on the consumer’s health. It is common sense that alcohol policy must find a suitable balance between the revenue needs of government and the social and health needs of the people. Depending on the needs of the day, the balance may tilt marginally in favour of one over the other. But never must it tilt excessively to either side.”
For many years, Sri Lankan policy makers have favoured a significant tilt towards the revenue end, cynically ignoring its negative impact on the population at large. With the advent of a new government it was hoped that a more equitable balance will be found. Unfortunately for Sri Lanka – and more so for Sri Lankans – the balance has now tilted decisively – and even more cynically – towards revenue generation, according to the statement. Alcohol consumption habits in Sri Lanka have been shaped by the policies followed by successive governments. For reasons best known to them, global best practices and benchmarks have been consistently ignored when formulating alcohol policy, it added.
“However, it is not too late to begin the shift towards a policy that helps minimise harm from alcohol consumption whilst addressing the revenue needs of government. The win-win is to achieve an increase in revenue whilst simultaneously reducing the consumption of pure alcohol in the country. This can be done and we have provided the authorities with the methodology. It now remains to be seen if the authorities have sufficient empathy towards consumers to make the necessary changes,” the company said, adding that, “We had no option but to pass on to consumers the sharp increase in excise duty referred to above. However, some in the spirits industry absorbed the additional cost. This is notwithstanding the remarkably thin margins some of them maintain within their brand portfolios.”
Indeed, in some instances, it appears that margins are negative giving credence to the widely-held perception that some in the spirits industry refrain from paying their taxes in full. If the authorities are serious about widening the tax net, here is a good and easy place to start, it said.
Notwithstanding the difficult operating conditions, due to a relentless focus on driving performance across the supply chain, profit before tax for the 6 months ended 30th September 2015 improved by 26 per cent to Rs. 1.8 billion, the statement said.
“However, the sustainability of similar profit growth during the remainder of the year is in some doubt after the significant excise duty revisions referred to above. In October, the month in which excise duties were revised, we recorded a 27per cent drop in sales volumes when compared to September, the month immediately preceding.”Whilst it is likely that some of that volume will return in the months ahead, it is at this moment not possible to determine how much and profitability during the remaining period will depend very significantly thereon, the statement said.