Toasting change?

Finance Minister Mangala Samaraweera last week waded into controversial waters by telling Parliament that Sri Lanka should reconsider and reform its alcohol industry regulations, proposing that dry days, such as Poya Days be reduced and licensing fees for distilleries should be drastically slashed. His main point was such measures would assist to combat illicit liquor and drive up Government revenue, while improving responsible public consumption.       

Controversial as Samaraweeera’s remarks may be, most of them are based on sound principles. Responses to alcohol policies successfully implemented by countries, for instance, in Europe, often offer ready-made guides for countries like Sri Lanka to follow, where incongruous alcohol policies are at the core of the problem. There has been no national alcohol policy in Sri Lanka as such, except for ad hoc strategies introduced from time to time, sans long-term prudent objectives. 

Alcohol has become more readily available over the past three decades with the liberalisation of trade and open economy policies adopted since 1977 in Sri Lanka. This has led to some section of the population being open to greater risk of alcohol-related harm. These include the low income, unemployed, or partially employed rural and urban working populations who are mainly addicted to consuming of illicitly brewed alcohol. But random tax increases do not address these issues. 

Sri Lanka’s regulations are an anomaly from global practices, where restrictions on liquor are based on the pure alcohol content of the beverage, notes a study done by the Institute of Policy Studies. Successive governments of Sri Lanka have been following contradictory policies with respect to legal alcohol. While they have utilised it as a major source of revenue, and raised excise duty rates on alcohol to prohibitively high levels, and still continue to depend on it to finance its expenditure, it is treated as a ‘sin industry’, and obstacles and restrictions are placed affecting its smooth functioning. 

Like in most other countries, beverage alcohol – beer, wine and distilled spirits like Arrack– are subject to taxation in Sri Lanka, mostly as an excise tax. There are also other taxes associated with beverage alcohol manufacture and consumption such as Corporate Income Taxes, License fees, and Value Added Sales Taxes. Unlike value-added taxes and sales taxes, excise tax is usually not based on the value of the product being taxed, but it is rather a fixed rate tax or specific tax, expressed as a monetary amount per quantity, as opposed to the value of the product.

The reality is that the State coffers do not receive the total taxable income because a substantial amount of liquor produced within the country does not fall under the tax bracket. This segment is known as the “illegal alcohol industry” sector which sells imitated liquor at the same price as the legal product, possibly using the same channels, but does not pay taxes. 

Past experiments have shown that prices alone do not limit consumption. Research and fact based policy making would give the opportunity to the Government to regulate the industry in such a way as to increase awareness, strengthen law enforcement, wipe out political patronage in the illegal industry and raise responsible consumption of alcohol. The Finance Minister may have taken up a politically charged issue, but it has many merits for sober consideration.