Within the context of a deteriorating economic environment, the Government and regulators must pursue a balanced and sensible approach to the legal alcohol industry as ad hoc policies will impact government revenue streams and create a thriving illicit sector.
According to Ceylon Beverage Holdings CEO Rajiv Meewakkala, for the 2021/22 year, 60% of the price of beer is composed of excise tax, compared to world norms of between 20%-30%, which indicates that the pricing for beer is at a high level thereby compromising the value for money equation versus illicit products.
In fact, WHO estimates 37% of the alcoholic beverages consumed in the country is duty-not-paid which is significantly higher than the global average, he said.
The estimated excise taxes for 2022 from the duty paid alcohol is Rs 180 billion which implies an estimated Rs 80 billion rupees per annum of tax evasion, he said.
This situation is driven by the legal alcoholic beverage price threshold creeping up versus illicit products which gives impetus for consumers to move to the illicit sector which is evidenced by WHO statistics indicating a 300% growth in the latter, he said.
Therefore, using excise as a short-term revenue generation tool will have disastrous consequences for the Government, he said.
Another factor driving growth in the illicit category is restricted access. Sri Lanka has only 1,130 licensed retail liquor stores which, on average, implies an outlet serves an area greater than 57 sq Km, he said.
Retail liquor stores are not evenly placed across the country leading to very limited access to legal alcoholic beverages, especially in rural areas, he said.
In several parts of the country, one retail liquor store serves an area greater than 100sq Km. Some districts such as Kilinochchi have no licensed stores, he said.
According to him this creates the incentive for illicit alcohol growth as legal products are simply not available.