Sri Lanka’s largest brewer says many spirit makers are tax evaders

• Urges authorities to take action to prevent revenue leakages
• Sri Lanka has 24 licenced spirit makers

Sri Lanka’s largest brewer, Lion Brewery PLC has called for a level-playing field, as according to the firm, a number of players in the country’s spirits industry resort to tax evasion and the regulators have turned a blind eye to such unlawful behaviour. 

“Whilst the beer industry has significantly enhanced its contribution to government coffers, it’s unfortunate that serious revenue leakages continue unabated in the spirits category,” Lion Brewery noted. 

There are 24 licensed manufacturers in the spirits segment, far too many for a market the size of Sri Lanka. According to Lion Brewery, with a few exceptions, many of these manufacturers resort to tax evasion. 

“In some instances, the net revenue (i.e. MRP less excise duty & trade margins) earned per unit is insufficient to cover variable costs, which is a clear indication of tax evasion,” Lion Brewery said. 

The firm also said if the regulators stop turning a “Nelsonian eye” to these activities, the government revenue is likely to increase very significantly.

Meanwhile, Lion Brewery said its performance during the most recent quarter reflected the performance of the first two quarters of the financial year 15/16 when operating conditions were similar.

The excise duty on beer was revised by the November 2017 budget, ending the discriminatory tax regime which provided an undue advantage to hard alcohol over beer. As a result, Lion Brewery returned to profit during the final quarter of financial year 17/18 on higher beer sales. The upward momentum continued in the first quarter of the financial year 2018/19 and the second quarter, of which the interim financial accounts were released last week. Accordingly, for the July-September quarter, Lion Brewery reported earnings of Rs.6.82 per share or Rs.545.6 million compared to Rs.1.14 per share or Rs.90.8 million reported for the same period last year on revenue of Rs.10.9 billion, up 65 percent year-on-year (YoY).

For the six month ended September 30, 2018, Lion Brewery reported earnings of Rs.16.04 a share or Rs.1.3 billion against Rs.5.08 per share or Rs.406.6 million reported for the same period last year, on revenue of Rs.20.4 billion, up 69 percent YoY.

“Tourist arrivals have continued to increase during the first half of the year. Latterly, there has also been a shift from hard to mild alcohols and very encouragingly from illicit to soft liquor. 

“Meanwhile, due to prudent management, the company’s net borrowings have seen a gradual reduction. These factors have helped the company deliver an improved performance during the 6 months under review,” Lion Brewery said in an earnings release. 

Carson Cumberbatch group owns 60.75 percent of LION shares both directly and through subsidiaries. Carlsberg Brewery Malaysia Berhad owns 25 percent of company shares as the second biggest shareholder.