ECONOMYNEXT –High alcohol taxes are pushing the public who have been hit by an economic crisis, into illegal alternatives, Harry Jayewardena, head of Distilleries Corporation has said.
DCSL has seen a fall in sales in the past year.
“Looking ahead, it is evident that the current tax policies, if maintained, will have detrimental effects on the legal alcohol sector,” Jayawardena told shareholders in the annual report.
“The affordability of legal alcohol is likely to decrease further, pushing consumers towards harmful, illegal alternatives, including drugs.
“This situation is concerning, and we strongly urge policymakers to re-evaluate the taxation approach for legal alcohol. It is essential to find a balance that makes alcohol accessible while discouraging the use of illicit substances.”
Sri Lanka’s rupee collapsed from 200 to 360 to the US dollar in 2022 after macro-economists cut rates with inflationary open market operations, for flexible inflation targeting (printing money to boost inflation without a floating rate) and potential output targeting (printing money for growth0, triggering currency crises.
The latest collapse came on top of earlier targeting of the call money rate with inflationary open market operations by macroeconomists, without a floating exchange rate busting the currency from 113 to 200 from 2012 to 2020.
Amid deflationary policy from late 2022, the rupee has been allowed to appreciate to 300 to the US dollar.
Meanwhile DCSL said taxes were hiked from 5,000 rupee to 6,000 rupees per absolute proof liter in July 01, 2023 and another 840 rupees taking the duty to 6,840 rupees.
“These hikes have not only increased the price of alcohol products by approximately 58% but have also widened the gap between legal and illicit alcohol markets, inadvertently driving growth in the latter,” Jayawardena said.
Alcohol is also hit by other sales taxes including 18 percent value added tax, the 2.5 percent cascading Social Security Contribution Levy slammed two points (at manufacture and also sales at half the rate).
Not enough is done to curb illicit alcohol Jayawardena said.
However a top excise official said they had increased raids. There are also higher levels of home made kasippu.
Youtube videos detailing how to distill kasippu are racking up views by the million. There is anecdotal evidence of how government workers and others also increasingly turning into kasippu (which is now sold in small plastic bags) to be easy on the purse.
A legal standard arrack (special or ‘gal’) sells for around 3500 rupees a 750 bottle compared to 1,200 to 1,500 kasippu or around 300 to 350 rupees per ‘quarter’ plastic bag.A quarter bottle of legal arrack is around 800 to 900 rupees.
