Sri Lanka: Lion Beer blames beer sales plunge on increased taxes

Sri Lanka's beer sales volumes have plunged 40 percent and arrack sales have risen 14 percent after a steep hike in beer taxes, while toddy industry which pays little taxes are also making gains, Lion Beer has warned.

Lion Beer, which produces Lion and Carlsberg brands, said beer taxes were raised 70 percent and taxes on arrack, a hard alcohol, were raised 25 percent, leading to a shift in demand.

The firm said beer which has an alcohol content of around 5 percent or higher is taxed at 315 rupees a litre while toddy which also has a similar alcohol content is only taxed at 50 rupees a litre.

"As a result, consumers are shifting in large numbers to toddy," Lion Beer said.

"In revenue terms too, the Government is losing out since available data clearly indicates that this industry is a habitual tax evader."

"If the intention of the steep tax increase on beer was to reduce consumption of legally made alcobevs, it has not worked since arrack volumes have grown to compensate."

Lion Beer claimed that toddy is made from mixing chemicals under unhygienic conditions.

"In reality, what is currently sold as toddy is not fit for human consumption. Yet, its sale is encouraged by the application of a preferential tax."

A 10 and 15 rupee tax was also levied on cans from November.

"Again the objective is not clear. Why only beer cans?" the firm asked.

"If the intention was to protect the environment, why not on similar packaging of other products including beverages?

"Irrational policy measures of this nature scare away all investors – not just brewers – and at a time when the country is seeking to expand its manufacturing base, this is counter-productive."

The taxes however are expected to help boost sales of 'quarter' bottle arrack, and bring back to the alcohol market, working class consumers who had started to consume 'strong' beer, analysts familiar with the market say.

However Lion Beer said the government had helped the firm import beer paying the same domestic manufacturing taxes, after its factory was damaged by floods.

The move had helped keep the product flowing, though imports cost more and margins were lower.

The firm was also in talks to get a 2.0 billion rupees insurance claim, of which a billion had already been received.

The factory was re-started from November but was fully operational only in late December, the firm said.

Lion Brewery said revenues fell 35 percent to 5.3 billion rupees in the December quarter from a year earlier and profits fell 29 percent to 327 million rupees. It reported earnings of 4.0 rupees per share for the quarter.

In the nine months to December the firm lost 613 million rupees, compared to profits of 1.7 billion rupees a year earlier.

15 February, 2017