Sri Lanka: Beer drinkers expected to switch to arrack as taxes on strong beer are now equal to those on hard liquor

Arrack drinkers who were switching to beer until last year would now move back into the hard alcohol after Sri Lanka’s finance ministry hiked taxes on strong beer by 70 percent over the last year, Fitch Ratings said.

"We expect the trend of drinkers switching to beer from hard liquor to reverse in 2016, as taxes on the alcohol content in strong beer have caught up with those on hard liquor (spirits) after increases in excise taxes in October and November 2015," Fitch Ratings said.

The rating agency confirmed an 'AAA(lka)' rating on Distilleries Company of Sri Lanka, the island's largest hard liquor maker.

Distilleries accounted for around half of Sri Lanka's total alcoholic beverage production and 72 percent of the country's total arrack production, Fitch said.

Arrack production declined 3 percent a year over 2011 to 2014, resulting in a smaller share in alcohol sales for arrack.

But, Fitch expects sales of spirits to grow in the mid-single digits over the next three years, which will help the segment to regain lost market share.

"Disposable income is likely to rise, driven by higher per capita income along with the mid-single digit economic growth for Sri Lanka, and following the recent increase in public-sector pay, higher tax exemptions for private-sector employees and reduced essential-goods prices," Fitch said.

26 February, 2016