Nov 12, 2017

New alcohol tax formula to crack down on illicit liquor

The government has introduced an alcohol tax formula in Minister Mangala Samaraweera’s maiden budget as a part of a crackdown on illicit liquor that negatively affects health.

Illicit alcohol accounts for 49% of the total alcohol market in Sri Lanka. Recent estimates suggest that there are substantial economic and health costs due to alcohol consumption, mainly illicit and licit spirit.

Detection of illicit alcohol remains very weak suggesting it is required to have an alternative way for reducing the illicit liquor consumption.

The price of arrack and imported hard liquor could increase as the new liquor taxes are based on the alcohol strength.

The relevant gazette notification has already been issued and the tax increase would affect brandy, gin, rum, tequila, vodka, and whiskeys, as well as other spirits, containing more alcohol percentage.

The rate structure of liquor license fee will be simplified with effect from 1 January 2018 and the issuance of new liquor license will be simplified to promote tourism.

Firm demand for alcohol will absorb higher prices caused by Sri Lanka’s introduction of new alcohol tax formula.

“The inelastic demand for refined alcohol and rising per capita income should allow companies –including Distilleries Company of Sri Lanka PLC to pass on taxes to consumers without worrying about them shifting to the more affordable illicit market, analysts said.

Alcohol volume based Excise Duty depends on the type of liquor. The rate structure of liquor license fee will be simplified with effect from 1 January 2018 and the issuance of new liquor license will be simplified to promote tourism. The changes to Excise Duty have been published in the new Gazette notification No 200/34 of 09/11/2017.

The price of beer and wine will come down significantly as they contain less alcohol. Excise Duty will be imposed on raw materials used for manufacturing of ethanol and the Excise (Special Provisions) Duty applicable on canned beer will be removed.

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