Ethanol ban to dent major bottlers

Ethanol, the main ingredient for making arrack manufacturers such as Distilleries Company PLC ( DCSL) which is also the largest hard liquor manufacturer in the country, will face challenges in the coming year, on the back of the government’s decision to ban ethanol imports.

The Finance Ministry said the import of ethanol for liquor production will be suspended from January 1 on the direct ives of Prime Minister Mahinda Rajapaksa as the Minister of Finance. This move has been made as ethanol is widely produced locally. During Mr. Rajapaksa’s Presidency in 2013 also the Ministry banned ethanol imports saying the country has an excess production of ethanol and also due to the decline of demand for locally produced ethanol.

Ethanol consumption in the country is 35 million litres annually. Locally 15 million litres are produced and the balance 15 million litres are imported, data show. There are 24 spirits and beer manufacturers and more than 30 toddy bottlers while DCSL imports more than 75 per cent of the total imports. Apart from DCSL, IDL Lanka Ltd, W. M. Mendis and Company Ltd and Rockland Distilleries ( Pvt) Ltd import ethanol among others. Some distilleries are owned by ex-ministers.

Excise duty on liquor is the second largest contributor to the total excise tax revenue after motor vehicles. During 2008 to 2014 liquor sector excise duty contribution has been hovering around 27 per cent – 29 per cent while representing approximately 6 per cent of the total government revenue. DCSL and beer manufacturer, Lion Brewery PLC pay a consolidated Rs. 80 billion annually to the Treasury which accounts for 71 per cent of the total Excise duty revenue.

DCSL saw a drop in sales volume in 2018 following the 2017 excise- duty revision, which brought down taxes on beer pushing consumer demand to beer, as it was cheaper. DCSL has also lost volume to the illicit market owing to the high tax regime and weak economic conditions, which made its products less affordable. The new ban will affect them some more, analysts say.

The Business Times learns that four MPs have been importing ethanol for years without paying taxes.