Lion Brewery’s Rs. 103.8bn tax bill exposes seven-year-old broken promise on alcohol tax reform

Lion Brewery (Ceylon) PLC’s latest set of numbers reads like a masterclass in top-line resilience undone by fiscal drag. 

Revenue climbed 7.4 percent to Rs. 132.4 billion and profit after tax rose a healthy 17.7 percent to Rs. 11.2 billion, yet the company still handed over Rs. 103.8 billion to the state — Rs. 6.9 billion more than the year before, and part of a cumulative tax bill approaching half a trillion rupees over the past decade. 

Strip out the accounting and the picture is stark: of every rupee of value Lion created in FY2026, 82 cents went straight to the Treasury, against 2.5 cents to shareholders and 2.3 cents to its own workforce. 

Sri Lanka’s Finance Ministry first floated indexing alcohol excise to inflation back in June 2019. Seven years, and at least four ad hoc hikes totalling an 88 percent cumulative increase since 2023 alone, later, Lion’s Chairman used this year’s report to make the identical request: a formula-based system “free of multipliers.” A 5.9 percent inflation-linked adjustment was finally applied in January 2025 — the first genuine step toward that 2019 pledge — but it arrived as a single gazette notification rather than legislation, with no institutional commitment to keep it running. 

Tellingly, Lion isn’t the only one asking. Public health researchers have separately lobbied for the same rules-based, inflation-indexed excise formula for years, and accuse the government of failing to act decisively despite repeated calls. 

When a brewer and a health lobby end up making the identical ask for the identical reason — predictability — and neither gets it, that’s less a policy gap than a policy choice.

Underlying demand tells its own story. Local beer production rose 5 percent in 2025 and liquor production 17 percent, suggesting both categories are expanding rather than shrinking, with commentators pointing to alcohol prices lagging behind inflation and rising incomes as the key driver.  Beer notched double-digit volume and value growth in 2024 and remained Sri Lanka’s top alcoholic drinks category by Euromonitor’s count, though a separate 2024 public health survey found arrack still commands the largest overall share of the market — spirits are currently winning the growth race and, on one reading, the market-share contest too. That contest also settles the “hard liquor” question, though not the way Lion argued a decade ago. Under the January 2025 excise notification, beer above 5 percent ABV is taxed at Rs. 6,015 per litre of pure alcohol against Rs. 7,244 for special arrack and Rs. 7,969 for locally-made foreign spirits — beer is now the cheaper pour per unit of alcohol, the opposite of the “shocking” inversion Lion itself flagged in 2016. This pecking order isn’t unusual regionally: India applies the same content-based logic, taxing spirits well above beer per degree of proof, an approach the WHO endorses since it nudges drinkers toward weaker beverages rather than stronger ones. Where both countries fall short of that principle is at the bottom of the ladder — toddy and other non-distilled local liquors are taxed at a fraction of beer or arrack rates, the obvious arbitrage neither has closed, alongside outright illicit moonshine that pays the Excise Department nothing at all.

That arbitrage carries a real cost. Non-communicable diseases account for roughly 83 percent of deaths in Sri Lanka, and the Alcohol and Drug Information Centre puts alcohol-linked deaths at close to 20,000 a year — about 50 a day. A 2015 study found the economic cost of alcohol use already exceeded excise revenue that year, before the sharper duty increases of the past three years. Higher, well-designed alcohol taxation is a WHO “best buy” for cutting that burden — but the design matters as much as the size of the hike, and a system driven by ad hoc revenue needs rather than a coherent formula risks delivering neither steady collections nor better health outcomes, just a bigger informal market absorbing the difference.

Set against a 2026 budget targeting roughly Rs. 5.4 trillion in state revenue, Lion’s Rs. 103.8 billion tax bill is close to 2 percent of that entire target, from a single listed company. That degree of fiscal dependence on one brewer, alongside a promised reform that two separate constituencies have now been chasing for the better part of a decade, is difficult to read as anything other than opportunistic revenue collection dressed up in policy language. (NF)