Alcohol beverages sector to start 2016 on high note despite tax hitches

10 December 2015 02:51 am - 0 - {{hitsCtrl.values.hits}}

A A A

The local alcohol industry will kick off 2016 on a high note as the nation’s expanding disposable income is projected to help maintain the demand despite higher prices, according to the international credit rating agency, Fitch Ratings.
“Rising disposable income will absorb the higher duties and Fitch believes the inelastic demand and increased consumer demand for refined alcohol should allow companies to pass on those charges to consumers without worrying about them shifting to the more affordable illicit market,” the agency said in its latest report on Sri Lanka’s alcoholic beverage makers.

With a gross domestic product (GDP) growth forecast of over 6 percent for the country in 2016, Fitch expects increased per capita income by way of the recent increase in public sector pay, higher tax exemptions for private sector employees and reduced essential goods prices to improve the affordability and help sustain the demand for alcohol in 2016.
The market structure will be attractive for the existing manufacturers as a total ban on advertising and stringent licensing requirements have set up high barriers to entry, Fitch said.
Despite the government’s decision to raise excise duties on alcoholic beverages in October and November 2013, Fitch has assigned a stable outlook for the local alcohol beverage manufacturing sector.
Fitch expects spirit makers, including Distilleries Company of Sri Lanka (AAA Stable), to capture a greater proportion of the market as smaller players would exit due to not being able to cope with the minimum monthly excise tax of Rs.200 million reintroduced in Budget 2016 for alcohol manufacturers.
Smaller spirit makers account for approximately 10 percent of the market.
Furthermore, the change in the annual licensing fee of liquor manufacturers, which has moved to a flat rate of Rs.150 million irrespective of volume, could also hit smaller firms and hasten exit.
Pointing out that the companies may find it difficult to revise prices on a regular basis if the government decides to raise taxes multiple times in the same year as seen in 2015, Fitch warned the move could adversely affect profitability.
Significant price increases imposed at short intervals may also result customers to shy away from the mainstream market, it added.

Shift to beer from hard liquor to slow down
The speed at which drinkers are switching to beer from hard liquor should slow down in 2016 as the taxes on a 100 percent alcohol by volume basis on strong beer have surpassed that of hard liquor after the back-to-back tax increases in October and November 2015, said Fitch Ratings.
According to Fitch, the beer manufacturers, such as Lion Brewery PLC, would be compelled to increase prices at a faster pace compared with the liquor manufacturers to reflect the revised taxes, which could negatively affect demand.

“The duty hike in 2015 has resulted in the taxes on strong beer overtaking that of hard liquor on an equivalent alcohol basis, which we believe would slow down the demand shift to beer as the former gets more expensive,” said Fitch in its report.
Strong beer constituted 90 percent of beer production in the country in 2014 and reported the highest growth rate in the industry.
Beer production rose 4 percent in 2014, following a 21 percent increase in 2013, while hard liquor production has declined 12 percent in the last two years.
It is observed that spirit makers have been facing increased competition from beer producers given the growing popularity of beer among the younger population, competitive pricing and rapid urbanisation in post-war Sri Lanka.
Margins of alcoholic beverage makers may weaken in the early part of 2016 as players may find it difficult to immediately increase prices to reflect the recent tax increases.
Furthermore, Fitch expects the sector EBITDAR margins to also tighten in 2016 as the full-year impact of the removal of the Value Added Tax (VAT) will take effect, impacting the ability of alcohol manufacturers to claim input tax.

Order Gifts and Flowers to Sri Lanka. See Kapruka's top selling online shopping categories such as Toys, Grocery, Kids Toys, Birthday Cakes, Fruits, Chocolates, Clothing and Electronics. Also see Kapruka's unique online services such as Money Remittence,Astrology, Courier/Delivery, Medicine Delivery and over 700 top brands. Also get products from Amazon & Ebay via Kapruka Gloabal Shop into Sri Lanka

Comments - 0

Add comment
Comments will be edited (grammar, spelling and slang) and authorized at the discretion of Daily Mirror online. The website also has the right not to publish selected comments.

Alcohol beverages sector to start 2016 on high note despite tax hitches

Comments - 0

Add comment

RECOMMENDED

‘Spike in blast fishing’ poses renewed threats to Sri Lanka’s marine ecosystems

UDA owned land in Thalawathugoda; UDA Minister Prasanna Ranatunga under the spotlight for forceful occupation of reserved land

Loss-making SMIB faces political pressure in recovering loans

Baltimore Bridge Collapse: MV Dali, SL authorities anchored in mystery?

Has Sri Lanka become a potential hub for the illegal wildlife trade?

Spotlight on Moragahakanda Development Project Moragolla villagers lose livelihoods and down to one meal a day

Ambitious Sri Lankan jobseekers ‘trafficked into Ukraine war zones’

Most Viewed in News

“Ranil Ralla” : Will Wickremesinghe ride on a winning wave?

Racism, body-shaming fly high with Air Belgium crew against SriLankan staff

On-arrival visa fiasco drains VFS Global’s confidence in Sri Lanka

Kumar Sangakkara’s relative’s house, gutted by fire in Kandy

Sri Lanka now has highest visa costs in Asia: Tourism stakeholders

Sri Lanka face unusual dilemma

MIRROR CRICKET

Former netball star Kretser to head CDTA

Sri Lanka Cricket raises player fees across all formats

Plans approved for £61.8m redevelopment of Lord’s

Sri Lanka great tips Sanju Samson to thrive at T20 World Cup

TODAY'S HEADLINES

Battery-operated toys pose risks to kids

1,000 Sri Lankan mercenaries in Russia -Ukraine war front as mercenaries

Homagama jewellery shop robbed at gunpoint

SJB nominates Mujibur as MP despite request to appoint a woman representative in place of Diana

Former netball star Kretser to head CDTA

Former SL netball captain fails doping test

Plans approved for £61.8m redevelopment of Lord’s

Sri Lanka announces squad for T20 World Cup 2024