Ethanol clearance delay, ban on imports hurt industry
The delay in the clearance of ethanol tankers imported by local manufacturers placing orders and opening LCs before the government’s ban on rectified spirit on January 1, 2020 will hit local liquor manufacturers as well as the personal care industry, paints, coatings, printing inks, fragrance and flavour industries which need ethanol for their production.
The government will also be deprived of much needed tax revenue due to the ban as the liquor industry would cut their production, which would result in a significant loss of revenue to the Government.
According to the Ministry of Finance, the excise revenue target for 2020 was Rs. 130 billion, out of which Rs. 68 billion was expected from the tax on ethanol imports. Last week the Business Times reported on how ethanol containers imported by the Harry Jayawardena-led Distilleries Company of Sri Lanka had been ordered to be released on the intervention of the President.
At least 22 small licensed importers have been affected by the ban on ethanol imports and a few of their containers (1or 2) are still to be cleared by Customs due to the strict procedure of the department, several importers told the Business Times.
They pointed out that this would create a shortage of ethanol-based products and lead to a loss of tax revenue in the long run.
The inadvertent end result of it could kill the competition and thereby lower the quality of the products.
Local liquor manufacturers would be hit badly as the local production of ethanol is inadequate to meet the local demand, Excise Department data revealed.
According to this data, production capacity of five local ethanol producers meets only 42 per cent of the local requirement. The estimated maximum production of Pelwatte, Sevanagala, Hingurana and Galoya plantations and Royal Casks Distilleries is in the region of 12 million litres per annum whereas the industry requirement is around 30 million litres annually.
Industry sources alleged that the government is trying to create an ethanol monopoly by directing alcohol producers in the country to purchase ethanol from the state-owned sugar companies.
While the Sri Lanka Customs says the importation of ethanol has been temporarily banned, it has been revealed that a gazette notification in this regard (which is a requirement to make it legal) has not been issued as yet and the ban is being implemented on a letter sent by the Ministry of Finance on January 2, official documents revealed.
In the absence of competition due to ban on ethanol imports, the ethanol produced in Sri Lanka is alleged to be of lower quality particularly since there is illegal production too, according to several alcohol manufacturers in the country.
“Therefore the restriction on the import of ethanol needs to be restored at an early date, as otherwise the production of illegal liquor in the illicit market would flourish and adversely affect the market,” one importer said.