Sri Lanka: Lion Brewery urges government to come up with fool proof mechanism against tax revenue leakages

Sri Lanka’s largest brewer has urged the government to come up with a fool proof mechanism to eliminate the tax revenue leakages stemming from non-declaration of full production volumes by spirits makers, the Daily Mirror reported on February 14.

“As is common knowledge, a number of players within the spirits industry don’t declare their full production, thereby avoiding the payment of due taxes. We are made to understand that the resulting tax leakage is of a significant value.

Thus, a system to prevent such leakage is imperative and has our full and unstinted support. We trust the Excise Department will—in consultation with the alcobev industry— find a foolproof mechanism to eliminate this leakage,” Lion Brewery (Ceylon) PLC (LION) said releasing its third quarter results on February 13.

“It is imperative that the mechanism so decided upon is indeed fool proof, is easy to implement and is not outdated in terms of technology.

It is also imperative that the mechanism is cost neutral to manufacturers and is funded entirely out of the anticipated gain in government revenue,” the company added.

Meanwhile, Lion Brewery said the government revenue from the beer industry had grown by Rs.7 billion to Rs.25 billion in the first nine months of the 2018/19 financial year.

In November 2017, the government brought in a rational tax policy to tax liquor products based on the alcoholic content, ending a lopsided tax policy introduced in 2015, where hard liquor was taxed lower compared to beer.

Due to the discriminatory tax, the beer industry saw a volume contraction between 2014 and 2016, while the hard liquor volume increased by almost 27 percent, as the excise duties per unit of alcohol of strong beer surpassed that of hard liquor, estimates from Fitch Ratings showed.

During the period November 2015 to October 2017, LION suffered an earnings loss of Rs.7.6 billion, on account of the lopsided excise tax policy, excluding the losses that arose as a result of the floods and the resultant shut down during May to December 2016, the company said.

Meanwhile, for the quarter ended December 31, 2018 (3Q19), LION reported earnings of Rs.13.96 per share or Rs.1.1 billion, against earnings of Rs.5.22 per share or Rs.417.9 million recorded for the same period, last year. The sales for the quarter rose 41 percent year-on-year (YoY) to Rs.11.3 billion.

For the nine months ended December 31, 2018, LION reported earnings of Rs.30.20 per share or Rs.2.4 billion, against earnings of Rs.10.43 per share or Rs.834.2 million reported for the corresponding period of previous year.

The sales during the nine months rose 58 percent YoY to Rs.31.6 billion.

However, LION said the company’s performance ended December 31, 2018 cannot be really compared since the operating conditions of the same period of the preceding year were significantly different.

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

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