IMF questions lower excise on imported liquor

Thursday, 5 November 2026 06:46 - - {{hitsCtrl.values.hits}}

Sri Lanka subjects imported alcoholic beverages to a lower fixed excise rate per litre than domestically produced alcohol, a treatment the International Monetary Fund (IMF) said should be integrated into the Medium-Term Revenue Strategy (MTRS) policy and administration agenda.

“This differential treatment is unusual, as imported and domestically produced excise goods are typically subject to equivalent excise rates to protect revenue, support neutrality, and reduce opportunities for arbitrage,” the IMF said in its Revenue Administration Diagnostic, recommending an assessment of a more neutral rate basis supported by stronger border controls, stamp verification, production monitoring and market surveillance.

Responsibility for excise administration is split across several institutions. Sri Lanka Excise (SLE) is responsible for alcohol, beedis and excise on tobacco leaf; Sri Lanka Customs (SLC) handles border controls over imported alcohol and administers excise on tobacco products, vehicles and sugary soft drinks; and excise on petroleum products is managed by the Ceylon Petroleum Corporation. The IMF said this allocation differs from common international practice and called for a time-bound review of closer integration with SLC, including a possible Customs and Excise model, while ensuring immediate action on alcohol, beedi, stamp and market controls is not delayed.

The report identified an urgent vendor-transition risk in the alcohol security-sticker regime. The contract with Madras Security Printers expires in January 2027, and SLE has advised that bids for the next vendor have been opened. Licensed liquor production reached 43.3 million absolute litres in 2022 following the introduction of the security-sticker system, declined to 35.1 million in 2023 and 35.3 million in 2024, and recovered to 40.4 million in 2025, which SLE attributes primarily to a substantial reduction in illegal products. Production totalled 20.8 million absolute litres through 30 June, 2026.

SLE does not consider a previously cited estimate that illicit alcohol accounts for approximately 40% of the market sufficiently reliable, and intends to procure a research study by a government university approved by the University Grants Commission; the IMF accordingly did not quantify a potential revenue loss. “Revenue losses from illicit or under-declared excise goods therefore reduce both excise and VAT collections, creating a cascading revenue effect that is larger than the excise loss alone,” it noted.

Staffing levels are low. SLE reported actual staffing of 1,140 against an approved cadre of 1,649 as at 31 December, 2025, leaving 509 vacancies, with staff also assigned to non-revenue functions including illegal narcotics control. The Revenue Administration System for the Excise Department (RASED), expected to include 15 modules, had its first module planned for launch in October 2026, with full implementation expected by 2028. Two liquor manufacturing facilities are currently fully automated.

“Resident officers stationed at producer premises are resource-intensive and can become routine, reducing their effectiveness as a control mechanism over time,” the report said, recommending they be gradually replaced by proportionate systems-based controls as RASED becomes operational, while safeguarding legitimate traditional manufacturing practices.