Sri Lanka’s leading beer brewer, Lion Brewery and arrack manufacturer, the Distilleries Company of Ceylon PLC last week, cried foul over the payments of Excise duties by toddy manufacturers where they get away scot free without paying Excise duties to the Government by around Rs. 5 billion annually.
This is in the backdrop of Lion Brewery and DCSL contributing over 71 percent of the total revenue between September and November 2018, amounting to Rs. 6.6 billion per month.
They said that illicit toddy manufacturers avoid paying these taxes due to the inefficiency of the Excise Department. These two companies contribute around 80 per cent of the Excise Duty of the revenue collected by State coffers.
They also cried foul over toddy being an illegal product which is artificially manufactured and is not fit for human consumption and that it did not have a quality standard and that as the Regulator, the Excise Department had failed to introduce quality standards.
They said that one of the chemicals which is used in the production, urea is poisonous and DCSL has said that it does not use artificial chemicals in its production process. They also said that illicit toddy is the primary sources of illicit ethanol to produce unreported illegal alcohol which leads to the loss of billions of rupees in tax revenue to the Government and is estimated at 40 per cent.
Illegal toddy has directly impacted the livelihood of toddy tappers who are engaged in a legitimate industry, they said.
Legal coconut sap can be tapped by the coconut industry only from coconut trees which are licensed for tapping and that the Department does not have control over this and illicit toddy continues to flow freely into the market.
Lion Brewery and DCSL have consistently and continuously highlighted this in their annual reports.
Lion Brewery CEO Suresh Shah, in his annual report to shareholders in 2016/2017 has said, “The free run permitted to toddy manufacturers is another example of poor policy making. Toddy is produced under the most unhygienic conditions, using a mix of chemical compounds.
In reality, what is sold as toddy, is not fit for human consumption. Yet, its sale is encouraged by the application of Preferential Tax.
“While beer, with an alcohol content of 5 per cent or above, is taxed at Rs. 315 per litre, the tax on toddy, which has an alcohol content, is Rs. 50 per litre. As a result, consumers are moving on a big scale to toddy. In revenue terms too, the Government is losing since data clearly shows that this industry is a habitual tax evader.
“Consumption of illicit alcohol is high in the country. It is not surprising that it is widely available in areas where licensed liquor retailers are few and far between, due to the prevailing Government policy. It is particular in rural and village settings.
“Illicit alcohol leads to multiple challenges, which relates mostly to the health of the consumer. In terms of Government finances, on the one hand, illicit alcohol leads to ill-health, and one the other hand, it leads to lesser revenue for the Government.
“Notwithstanding the multiple points arising from illicit alcohol, no Government, including the present, has made a serious effort in checking its consumption. Alcohol consumption is driven by illicit alcohol, then by hard alcohol and toddy. Of these, illicit alcohol and toddy are outright dangerous since they are produced under questionable conditions using even more questionable ingredients.
“Clearly, the country’s alcohol policy needs a clear overhaul. We hope that the policy makers now in charge, will approach the subject objectively and seek a pragmatic solution that is fair by consumers, all industry players and the Government’s revenue needs.
“There are 24 licensed manufacturers in the spirits segment, far too many for a small country such as Sri Lanka. With a few exceptions, many resort to tax evasion, the net revenue (the Maximum Retail Price less excise duty and trade margins), earned per unit is insufficient to cover variable costs, a clear evasion of taxes. It is also unfortunate that the Regulator is turning a Nelsonian eye to these goings on. If it is brought under control, the Government is likely to increase its revenue very significantly,” he said.
Chairman of the Distilleries Company of Ceylon PLC D.H.S. Jayawardena in his annual report to shareholders in 2018 has said, “We have absorbed that a large quantity of spirits has been smuggled into the country, passing through the Customs without paying taxes, classifying the products as paint removers, thinner and spirits for Eau de Cologne, depriving the State by a billions of rupees.
“Such acts are carried by powerful people belonging to political groups ( and that is well known in the market) with the connivance of the enforcement authorities who turn a blind eye and a deaf ear.
“Our unique and traditional Sri Lankan traditional toddy industry, which has been passed on from generation to generation, has today, become an endangered industry,” he said.