Sri Lanka: Lion Brewery praises government’s new tax policy

Sri Lanka's Lion Brewery has praised the government’s new tax policy based on alcohol content, saying beer sales had recovered sharply as it was less expensive for consumers, along with government revenue, EconomyNext reported on May 18.

The company reported group net profits of Rs1.3 billion in the March 2018 quarter compared with a loss of Rs813 million a year earlier, according to interim results filed with the stock exchange.

March 2018 quarter earnings per share were Rs15.88 compared with a loss of Rs10.17 the year before when it was recovering from the effects of floods which shut the brewery for six months.

Lion Brewery’s EPS for the full year to March 2018 were Rs26.12 compared with a loss of Rs18.09 the previous year.

Sales shot up 80% to Rs10.4 billion in the March 2018 quarter from a year ago. With cost of sales growing much slower, gross profit shot up over 200% to Rs2.6 billion. Sales in the year to 31 March 2018 rose 44% to Rs30.5 billion.

Lion Brewery said this year’s results are not comparable with those of the previous year, since the company’s operations were compromised by the flood for most of that period.

Flood related insurance receipts of Rs1.957 billion were accounted for in the results this financial year with the company now having received in full its insurance claim

“With a reasonable alcohol tax policy now in place, consumers, government and industry will all emerge winners,” a note accompanying the accounts said, referring to the November 2017 change in tax policy.

“Consumers, since they are no longer pushed by policy makers to drink hard alcohol, government, since its revenues will increase and industry, since it performance will improve.”

In November 2015, excise duties on beer were increased by as much as 70% with taxes on local spirits also increased but by a much lower 25%.

“There was no rationale for discriminating against the beer industry in this manner other than to provide the spirits industry a distinct competitive advantage,” Lion Brewery said.

“Consumption shifted immediately from beer to spirits, i.e. from mild to hard alcohol,” it said.

“Within months, spirits was accounting for over 65% of the country’s legal alcohol consumption. With illicit liquor factored in, hard alcohol accounted for an astonishing 85% of total consumption.”

It was the under privileged consumer that paid the price; since hard alcohols – both legal & illegal - were more affordable, they consumed more of it, the brewer said.

“Government revenues from the beer industry dropped dramatically. During the period November 2015 to October 2017, the company suffered an earnings loss of Rs 7.6 billion on account of the lop-sided excise tax policy.”

The figures exclude the losses that arose as a result of the floods and resultant shut down during May to December 2016.

“However, in November 2017, a more pragmatic excise duty policy was introduced and now, alcobevs are taxed on the basis of their alcohol content,” Lion Brewery said.

“This is in keeping with global practice and is the most appropriate policy to adopt with respect to alcohol since it encourages the consumption of beverages with a lower alcohol content.”

Lion Brewery revenue to government from the beer industry has also seen a sharp improvement.

Since November 2017 excise duty collections from Lion Brewery alone has increased by Rs 795 million a month with a further increase of Rs 208 million per month derived from VAT.

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