Excise tax increases on spirits likely to be more gradual

“Prohibitive increases could hamper demand and government tax income’

by Sanath Nanayakkare

Steep increases in liquor prices are unlikely in the medium term as it could affect government tax income when consumers can’t afford more expensive alcoholic beverages, according to a recent report by Fitch Ratings Sri Lanka.

“Excise tax increases on spirits would be more gradual in the medium term as prohibitive increases could hamper demand and government tax income,” they said.

“Excise tax on alcoholic beverages is a key source of government income, accounting for around 7% of tax revenue. The excise tax did not rise directly in the last 12 months but the VAT and nation building tax on liquor sales were reclassified as excise tax. This did not affect retail prices but widened the excise tax difference between spirits and beer to 24% from 20% in March 2019”, they noted.

Fitch Ratings has affirmed the National Long-Term Ratings of Sri Lanka-based conglomerate, Melstacorp PLC, and its subsidiary,

Distilleries Company of Sri Lanka PLC (DCSL), at ‘AAA(lka)’ -the Outlook Stable.

Melstacorp is a leading conglomerate in Sri Lanka with exposure to the alcoholic beverage, plantation, telecom, leisure, power and logistics sectors. Its core subsidiary DCSL is the country’s leading spirits manufacturer with a strong portfolio of well-known brands and access to an extensive distribution network.

“DCSL accounts for more than 70% of the country’s spirit market after strengthening its market position in Financial Year 2020. The Sri Lankan government in early 2020 banned the import of ethanol, forcing liquor producers to source all their requirements locally, despite a domestic shortage. However, DCSL has the necessary sourcing strategies that will help to ensure supply is not interrupted. The ongoing ban on the import of foreign liquor should also help DCSL to further strengthen its market share,” the report said.