The rashness demonstrated by the new regime in making tax policies has not only made the business of brewing tougher than ever but also pushed the people towards hard liquor, which is arguably more detrimental to health.
According to the country’s top brewer, Lion Brewery Ceylon PLC (LION), the alcohol industry has now been made liable for not just the higher excise duty, which was raised back in October 2014, but also for the higher value-added tax (VAT), which came into effect from November 1, 2016, making the total tax increase on beer up to 70 percent compared to the 25 percent increase in taxes on spirits.
“The beer industry – to a degree greater than the others in the alcohol sector – has been at the receiving end of this type of ad hoc and incomprehensible policymaking for many years.
With the advent of this government, we hoped things would change and that a more rational approach would prevail.
Unfortunately, this has not been the case and today Sri Lankans consume a significantly greater amount of hard alcohol than they did two years ago,” the company said in a note to its interim financial accounts released to the Colombo Stock Exchange recently.
This irrational tax policy by the government appears to have pushed the people to consume more spirits and toddy, while the consumption of beer has reduced by 39 percent. But the consumption of spirits has increased by 9 percent during the same period.
Alcohol consumption in a country could go up either if the population is extremely happy or they have been made extremely poor. While the former condition mostly drives the demand for formal liquor and a milder version of alcohol such as beer, the latter condition could drive the demand for illicit liquor or moonshine.
Therefore, excessive taxing of the formal alcohol industry could in fact boomerang on the government both economically and socially. But successive governments milked both the tobacco and alcohol industries whenever they found their exchequers depleted.
But analysts point out that this strategy could become futile as the demand will not remain inelastic forever.