The exemption of the Value-Added Tax (VAT) and Nation Building Tax (NBT) from the beer industry, coupled with the increase of excise duty to recover the lost government revenue, will form an adverse effect on the industry, according to Sri Lanka’s largest brewer, Lion Brewery (Ceylon) PLC.“For many years, the alcohol industry has been subjected to poorlythought-out policies. The adjustment is a case in point. These seem good on paper to those without the benefit of proper information,” Lion Brewery said in a review to its second quarter performances. Lion, the industry leader, is expecting a cost increase of Rs.600 million due to the new policies.

The exception of VAT and NBT from sale of beer has led t o t he inability of the company to claim input VAT from the government.This usually happens when the taxes on supplies purchased for production outweigh the taxes collected f rom the consumer.Further, t he excise duties were increased by Rs.10 and Rs.15 for mild and strong beer, respectively on October 10 during the lead up to the budget and on October 24 with the budget 2015, duties were further increased by Rs.30 and Rs.40 for mild and strong beer, respectively to recoup the loss of VAT and NBT receipts. Lion had passed on the first excise duty increase to the consumer but could not justify another increment within just two weeks.

“The company’s net result in the remaining period of this financial year may not be as buoyant as in the first half,” the company therefore reasoned.
The company has also been experiencing greater complexity in its supply chain due to VAT and NBT exceptions as it cannot issue VAT invoices for customers liable for it, such as hotels, restaurants and supermarkets, which can no longer claim input VAT on beer.

Supermarkets and other retailers have been particularly affected since they are also subject to a maximum retail price as per Sri Lankan regulations.
“Such customers have negative margins post-VAT and as a result, t hey have stopped orders for beer from October 25. This is likely to lead to a loss in volumes although a part of it will be recouped through wine shops, which are not liable for VAT,” the company noted.

It was also of the belief that these ad-hoc policies promote the products of illegal brewers, who do not pay tax.“The public believes that alcohol tax increases lead to lower consumption but the reality is far from it; the illicit and quasi legal manufacturers sell more and make more profits,” the company said and stressed that this would result in lower revenue for the government and poorer quality for consumers.