Lion Brewery urges govt. to restore 12% concessionary tax rate on exports

Sri Lanka’s largest brewery, Lion Brewery (Ceylon) PLC, has urged the government to restore the concessionary rate of income tax on its export profits.

The company said its exports are a buffer against the draconian policies on the home front.
“Exports are a buffer against inconsistent and unfair policies at home. Thus, exports are of strategic importance to the company. 

This means that sooner, rather than later, we will need to start investing significant resources to build and sustain markets overseas,” Lion Brewery CEO Suresh Shah said in the firm’s latest annual report. 

However, Lion Brewery praised the current Finance and Mass Media Minister Mangala Samaraweera for reversing the lopsided excise tax last year, imposed on beer in 2015, which effectively made hard liquor cheaper in the market compared to beer.

But the new Inland Revenue Act, introduced with effect from April 2018, continues to apply the corporate tax rate for alcohol products at 40 percent, as was previously. 

However, the rate applicable for exports of beer, which was previously 12 percent, is now 40 percent. 
“Exports are a key driver of economic growth. Higher tax rates dampen the motivation and encouragement needed for companies to vigorously search for export opportunities,” 
Lion Brewery Chairman Amal Cabraal said. 

During FY17/18, Lion Brewery exported 513 containers of beer from Sri Lanka and in the Maldives the firm continues to remain the market leader.

“We expanded our draught beer sales in this market by 23 percent during the year, reflecting the strong growth in tourism in that country,” Shah said.

The company also experienced significant volume growth in our exports to Africa during the year under review and also entered the Middle East market, specifically Abu Dhabi and Qatar, to cater to the expat community.

“Croatia, South Korea and Hong Kong are the other markets that we gained entry into, during this year,” Shah said.

However, he said the firm faced some challenges in the US market due to curtaining the supplies during the times of the floods in 2016. 

Nevertheless, the company was able to secure marginal growth in New York over the previous year and Lion Stout continues to gain traction in New York and in some top-end bars and restaurants, remains the only Asian beer to get a listing.

“Together with these markets we now have a presence in 19 countries around the world. Our export portfolio was expanded during the year with the addition of the Ryder’s brand and a coffee variant of Lion Stout. 

As much as we seek new markets for our existing portfolio, we will also add new brands, variants and styles to our export basket,” Shah said.

He noted that it is of crucial importance for the company in the long term to build its export market as it is the most effective tool to mitigate risks against the regulatory changes in Sri Lanka.

The export profits of Lion Brewery will be taxed at 40 percent because the firm’s exports generate less 80 percent of its total revenue.

“The new policy will help only those who are focused mainly on the export sector. However, is this where Sri Lanka’s strategic interests lie? Or does the country’s strategic interest lie in transforming Sri Lanka into a nation of exporters?” Shah questioned. 

“If it is the former, the taxation policy now in place will suffice. If it’s the latter, the present policy is wholly inadequate. We believe that the country must follow the latter direction and urge the government to restore the concessionary rate of income tax on all export profits,” he added.  Lion Brewery was making heavy losses due to lopsided tax policies and the floods in 2016 bounced back strongly in 2017, recording Rs.1.3 billion net profit for the final quarter of FY17, against Rs.813 million net loss reported for the same quarter of the previous year.

For the full year, the company made a net profit of Rs.2.1 billion, against a net loss of Rs.1.5 billion in the previous year.