IMF-backed inflation-indexed excise mechanism must be aligned with proven systems: Lion Brewery

• Cautions that failing to do so could lead to long term decline, giving further rise to illicit alcohol markets

Alarmed by the widening gap between legal and illicit alcohol markets driven by higher taxes, Lion Brewery (Ceylon) PLC, the leader in Sri Lanka’s duopoly beer market stressed that IMF-backed inflation-indexed excise mechanism should be aligned with proven systems such as of Canada and Australia.

According to Lion Brewery, taxes account for 69 percent of the consumer price of alcohol beverages. 
In 2023/2024 FY, the industry endured a cumulative 64 percent increase across on three occasions, widening the gap between the legal and illicit alcohol markets and thereby further fueling growth in illicit alcohol markets. 
In addition, the 3 percent increase in VAT also compelled the industry to pass on these costs to consumers through incremental price adjustments across the portfolio, resulting in a decline in total alcohol beverage volumes for the year.

“We support the government’s implementation of an inflation-indexed excise mechanism, as recommended by the IMF, to protect government revenue and provide transparency. This mechanism should align with proven systems in countries such as Canada and Australia,” Lion Brewery Chairman D. A. Cabraal told shareholders of the company in its latest annual report. 

Similarly, Lion Brewery Director/Chief Executive Officer R. H. Meewakkala cautioned that if prices increase above the rate of inflation, the legal alcohol market could be facing a long term decline by further losing out to illicit alcohol markets.

“In the next couple of years, it is important to take into account that real incomes will grow, but at a slow pace and if pricing increases above inflation and will result in a long-term decline of this sector,” he added.

Therefore, he stressed that indexed-excise mechanism must be transparent, with increases equal to inflation. 
Meanwhile, Meewakkala commended the government’s policy on access liberalisation which aims to curb illicits by increasing access to legal products.

“This is in a context of there being only one off premise licensed outlet every 45 sqkm on average, while in the Northern district this stands at one outlet per 167 sqkm. Clearly, this opens the door for informal activity as these distances are simply beyond rational. It is another level which the government should use to curb illicits by increasing access to legal products. The issuance of licenses in areas where poor licensed outlet penetration is prevalent has resulted in a positive direction. We hope these steps will continue, and will pave the way for a more consistent policy in respect of the alcoholic beverage category,” he elaborated. 

Despite the overall decline in volumes, the growth in tourist arrivals and initiatives taken by the company has mitigated a steeper decline. The malt liquor (beer) consumption in Sri Lanka fell by 3.5 percent YoY to 13.6 million litres in 2023.

(NF)