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What’s brewing? Huge duty waiver for beer company
View(s):The Ministry of Finance has granted significant duty waivers to Lion Brewery Ceylon PLC to import beer in view of its local factory being submerged in floods two months ago, documents obtained by the Sunday Times show. The relief was granted without publicity and translates to Lion Brewery importing beer from several Asian countries at the rate of excise duty charged for local manufacture. Lion and Carlsberg brands sold by Lion Brewery are also produced in Cambodia, Laos, Malaysia and India.
As such, the Government has slashed the customs import duty per litre of beer of less than five percent alcohol to Rs. 129 from Rs. 500 (75 percent); and for beer of more than five percent alcohol from to Rs. 246 from Rs. 500 (51 percent). This respite has only been granted to Lion Brewery. The total duty levied on imported beer, including cess and Port and Airport Development Levy (PAL), is about Rs. 582 per litre.
The Customs Ordinance permits the Minister of Finance to exempt goods imported by certain persons from import duties only if he deems it “expedient in the public interest” to do so.
These waivers have been given despite Suresh Shah, the Chief Executive Officer of Lion Brewery, stating in the 2015/16 annual report that, “…at the time of writing, the assessment is that the brewery will be out of production for 3 months. Your company’s insurance policies cover both floods & business interruptions.
“As an extra precaution we also ensure these policies are re-insured so that no single insurer carries a significant burden,” he reassures shareholders. “Thus from a cash flow perspective we do not foresee significant challenges. However, meeting the needs of the market will be a challenge, particularly in the initial weeks,” he says. The same annual report reveals that generators, boilers and pumps were damaged but will be recovered relatively quickly. “However, the electrical panels and electronics that were submerged have to be replaced,” it says. “These items are sourced from overseas and are made to order.”
The Sunday Times is in receipt of customs declarations forms dated July that prove that the waivers have been applied. A senior official from the Trade and Investment Policy Department of the Finance Ministry was tight-lipped when asked which companies had received duty waivers to help them tide over operational difficulties caused by the floods. He asked the Sunday Times to send a written request for information.
However, a Customs Department official said that, in the aftermath of the floods in May, the Government had waived for one month import duties on 36 essential food and relief items. Beer or any form of alcohol was not on that list which was sent also to the Ministry of Disaster Management. According to its financial statements, Lion Brewery made a net profit of Rs. 2 billion for the 2015/16 financial year. Carson Cumberbatch Group–that owns Ceylon Beverage Holdings which is the main shareholder of Lion Brewery–recorded a net profit of Rs. 4.5 billion in the same period.
According to calculations, the Government would lose Rs. 371 per litre of beer of less than five percent alcohol and Rs. 254 per litre of more than five percent alcohol imported by Lion Brewery. If Lion imports around five million litre of beer per month for four months, the potential revenue loss for the Government would be Rs. 6 billion.
Lion Brewery accounts for 85 percent of the beer market. The company acquired Millers Brewery in 2014 for Rs. 5.1 billion to maintain market dominance.