Monday, October 19, 2015

The Government’s windfall from Alcohol Taxes now exceeds Rs200Billion

It is not a state secret that The Sri Lankan Government earns more from Alcohol and Tobacco Taxes individually than they collect from Income Taxes from Individuals. As the sin taxes are regressive it is the less well-off who pay a higher portions of their expenditure in taxes, further skewing the income divide, benefitting the better of who pay hardly any tax, and the most they pay is on their expensive Motor Vehicles ONLY.

There is one significant fact that has gone unnoticed, and that is that MOONSHINE or Kasippu, production has been curbed dramatically, and as the Police were the main beneficiaries as they were bribed by the Mudalalis, it was easier to enforce from above, as they knew the producers and were rewarded for catching them.

With the significant reduction in Moonshine, the consumer DID NOT reduce his consumption of alcohol, and instead turned to the legitimate stuff. This provided a huge boost to the alcohol manufacturers by increasing their sales by more than 25%. No doubt with the reduction of the production by Rajapakse Govt. ministers who were importing Ethanol illegally duty free, a further boost was given to the main producers, and the Treasury also benefitted.

It is estimated that alcohol taxes as a result of the above actions will rise by 50% in 2015 over 2014, putting in stark contrast the help this will give to the Govt. in its drive to raise revenue to bridge the huge budget deficit.

Isn’t it ironic that a significant part of the increased salaries to Government Servants is returning by way of alcohol taxes back to the Treasury, by boozing state employees who are now going up market in their alcohol consumption habits giving a further boost?

The windfall of all this to the 5 main alcohol producers is mind boggling. These companies collectively hand over Rs10B a month to the Treasury,  the tax that is the easiest to collect!! The Excise have their own staff at the production facilities to check the quantities being produced, and now the tax is payable on production, and not on sale, and the liability is completely that of the producer to account for the taxes.

A further benefit is of the increase in tourism that has also resulted in a huge increase in beer taxes, that is alcohol of lower percentages. The irony is NOT LOST on a government bent on reducing alcohol and tobacco consumption growing increasingly dependent on these same taxes for survival! 

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