The taxes on beer is killing demand and since the 70% tax increase in October and November of 2015 beer industry volumes have decreased 40%, Mr. Suresh. K. Shah, the CEO of Lion Brewery (Ceylon) PLC has said in the company’s annual report.
"In the meanwhile arrack – the tax on which was increased by a relatively modest 25% - has seen 12% growth in volumes," he said. "At first glance this might seem a reduction in overall consumption. However arrack has approximately four times the pure alcohol content of beer. Thus while literage may have declined, the pure alcohol intake in the country has increased."
Shah has argued that it is well-accepted fact both in Sri Lanka and abroad that mild alcohols are less harmful than spirits. Thus globally, on average, spirits are taxed twice as much as beer from the perspective of the pure alcohol content in each beverage.
"In Sri Lanka, the reverse is true and beer is taxed 1.5 times more than spirits. Viewed in this context, the tax changes made in October and November 2015 are not rational and cannot be justified. It then begs the question, why?" he said.
Shah says that if the intention of the steep tax increase on beer was to reduce consumption of legally made alcobevs (alcoholic beverages) it has not worked because arrack volumes have grown to compensate.
"Had the intention been to reduce consumption, the tax on arrack – a product far more harmful than beer – should also have been increased by or about 70%. Yet this was not the case.
"Had the intention been to increase revenue to government, that too has been a failure. In Sept. 2015 – the month before the tax increase - the beer industry paid excise taxes of Rs. 2,161 million. In the first quarter of 2017, average monthly revenue from the beer industry is down to Rs. 1,156 million."
He has calculated that if loss in government revenue is annualized, the loss per year would be Rs. 12 billion and said "thus the government too has been burnt by its alcohol policy folly."
Shah has described the ‘beer can tax’ introduced in November 2016 as a "world first." This imposes a tax of Rs. 10 and Rs. 15 for cans below and above 350 ml. He has asked why only beer cans. If the intention was to protect the environment, why not tax similar packaging of other products including beverages.
"All these taxes on the beer industry have sent a strong message to consumers: ‘If you must drink,drink hard alcohol.’ A government policy of promoting hard over soft alcohol is surprising to say the least but consumers facing a challenging economic environment and rising cost of living responded as expected. Beer sales fell and arrack volumes grew," Shah said.
He says that alcohol consumption in Sri Lanka is driven first by illicit alcohol, then by hard alcohol and finally by toddy. Of these, illicit alcohol and toddy are outright dangerous since they are produced under questionable conditions using even more questionable ingredients.
"Legally produced hard alcohol is less harmful than illicit (alcohol) and toddy but certainly more injurious than the much milder beer and wine," Shah has said.
They had brought these points to the attention of appropriate policymakers a number of times and they have not refuted this point of view. But "for reasons best known to them, they have persisted with an alcohol policy that drives consumption of harmful products while marginalizing revenue to government."
"In the meanwhile arrack – the tax on which was increased by a relatively modest 25% - has seen 12% growth in volumes," he said. "At first glance this might seem a reduction in overall consumption. However arrack has approximately four times the pure alcohol content of beer. Thus while literage may have declined, the pure alcohol intake in the country has increased."
Shah has argued that it is well-accepted fact both in Sri Lanka and abroad that mild alcohols are less harmful than spirits. Thus globally, on average, spirits are taxed twice as much as beer from the perspective of the pure alcohol content in each beverage.
"In Sri Lanka, the reverse is true and beer is taxed 1.5 times more than spirits. Viewed in this context, the tax changes made in October and November 2015 are not rational and cannot be justified. It then begs the question, why?" he said.
Shah says that if the intention of the steep tax increase on beer was to reduce consumption of legally made alcobevs (alcoholic beverages) it has not worked because arrack volumes have grown to compensate.
"Had the intention been to reduce consumption, the tax on arrack – a product far more harmful than beer – should also have been increased by or about 70%. Yet this was not the case.
"Had the intention been to increase revenue to government, that too has been a failure. In Sept. 2015 – the month before the tax increase - the beer industry paid excise taxes of Rs. 2,161 million. In the first quarter of 2017, average monthly revenue from the beer industry is down to Rs. 1,156 million."
He has calculated that if loss in government revenue is annualized, the loss per year would be Rs. 12 billion and said "thus the government too has been burnt by its alcohol policy folly."
Shah has described the ‘beer can tax’ introduced in November 2016 as a "world first." This imposes a tax of Rs. 10 and Rs. 15 for cans below and above 350 ml. He has asked why only beer cans. If the intention was to protect the environment, why not tax similar packaging of other products including beverages.
"All these taxes on the beer industry have sent a strong message to consumers: ‘If you must drink,drink hard alcohol.’ A government policy of promoting hard over soft alcohol is surprising to say the least but consumers facing a challenging economic environment and rising cost of living responded as expected. Beer sales fell and arrack volumes grew," Shah said.
He says that alcohol consumption in Sri Lanka is driven first by illicit alcohol, then by hard alcohol and finally by toddy. Of these, illicit alcohol and toddy are outright dangerous since they are produced under questionable conditions using even more questionable ingredients.
"Legally produced hard alcohol is less harmful than illicit (alcohol) and toddy but certainly more injurious than the much milder beer and wine," Shah has said.
They had brought these points to the attention of appropriate policymakers a number of times and they have not refuted this point of view. But "for reasons best known to them, they have persisted with an alcohol policy that drives consumption of harmful products while marginalizing revenue to government."
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