According to Sath-handa, Lion Breweries (Ceylon) PLC which has a near monopoly is Sri Lanka is paying only a paltry sum of Rs 211 per litre under good governance in contrast to Rs 528 per litre which paid before, depriving the government of a shocking Rs 317 per litre.

2000 beer containers:

It is learnt that during the tax holiday awarded till November, Lion Breweries has already imported an astounding 200,000 litres of beer into the country, depriving a staggering Rs 72 million of tax rupees to the government hitherto and had also ordered consignments amounting to another 2,000 containers.

Sources say that the total tax monies lost to the state would amount to Rs 5,565 million as at existing capacity but would incur more losses in the event Lion imports more.

Lion Breweries (Ceylon)’s revenue reached Rs. 35.53 billion during 2015 recording a growth of 10% when compared to the previous year’s Rs.32.35 billion. On its turnover of Rs. 35.53 billion, a pretax profit of Rs. three billion was recorded, an improvement of 32% over the previous year’s corresponding figure of Rs. 2.3 billion.

The Company’s Annual Report for 2015 states that is the third largest taxpayer in the country. In the financial year 2015, excise taxes paid was Rs 20.2 billion whilst corporate taxes amounted to Rs. 878 million and has been lobbying for ‘more consumer and investor-friendly taxes’ on beer. In layman’s language, the company is campaigning for lower excise rates for beer. This is despite earning profits (I.e. PAT- Profit after tax) amounting to a staggering Rs. 2,080,54500 for 2015 recording a shocking 56.39% increase from a PAT of Rs. 1,330,320 recorded in 2014.

“During the year under review, your Company’s contribution to the State through excise taxes amounted to Rs. 20.2 billion, up 25% (Rs. 4 billion) from the previous year. This increase during the financial year is despite the decline in the overall excise duty payments since December 2015, the month in which the full impact of the tax increase was felt by the market. Indeed, during the 4 month period December 2015 to March 2016, revenue to the state from the beer industry declined by an average of Rs. 225 million per month or 10% when compared to September 2015, the last month in which the beer industry operated under the previous tax regime. If March 2016 – a month of high sales due to the onset of the traditional new year – is ignored, the average monthly decline of excise duty from the beer industry since November 2015 amounts to approx. Rs 455 million, a reduction of 21%. Had the October and November excise tax increases been more consumer and investor friendly, Government would have earned a much higher revenue from the beer industry. It’s a missed opportunity on the part of the Government particularly at a time when the Country is seeking financial assistance.”

Special treatment?

Although many homes and businesses were affected during the May floods and in the aftermath of the Salawa disaster, the government did not intervene in granting reliefs for business interruption except for a few companies such as Lion due to unknown reasons. Some analysts point that it was discriminatory for Lion Breweries with only 150 staff and which made a revenue of a staggering Rs. 35.53 billion be given such generous tax concessions.

“The resultant floods were the worst since 1989 and for the first time in its history the brewery premises were affected. Whilst the main brewing, processing and packaging equipment is safe, considerable damage was caused to utilities, electrical panels & electronics at the ground floor level. At this time the exact damage is yet being assessed but the insurance cover in place should cover resulting losses to the business,” Lion Breweries said in its Annual Report.

“As a result, it is a time consuming process & at the time of writing, the assessment is that the brewery will be out of production for 3 months. Your Company’s insurance policies cover both floods & business interruption. As an extra precaution we also ensure that these policies are re-insured so that no single insurer carries a significant burden. Thus from a cash flow perspective we do not foresee significant challenges.”

The reason is said to be that Lion Breweries directors and indirect owners – Harry Selvanathan and Mano Selvanathan are good friends with several ministers of Yahapalana government.

It is regrettable that the Lion Breweries to management constitute of respectable businessmen. Hari Selvanathan is Past President of the National Chamber of Commerce and Past Vice Chairman of the International Chamber of Commerce (Sri Lanka).

A prominent crusader on corporate governance- LION Director/CEO Suresh Shah is the Immediate Past Chairman of the Ceylon Chamber of Commerce, Vice Chairman of the Employers Federation of Ceylon, a Commissioner of the Securities & Exchange Commission of Sri Lanka and a Member of Council, University of Moratuwa.

Not seeing the beam in the LION’s eye

Without removing the beam out of its own eye, Lion Breweries lobbied for the removal of speck from its brother's eye (i.e. the toddy and arrack industries)by campaigning for higher tax levels for these two sectors.

Based on available evidence the volume lost by the beer industry has gone primarily to the toddy sector and the arrack sector which has gained marginally, states Lion Breweries in its Annual Report.

“Toddy is thought of as a poor man’s drink which comes from coconut sap. It is certainly cheap since it is taxed at a mere Rs 30 per liter (strong beer which has approximately the same alcohol content attracts a tax of Rs 315 a liter). However, due to the lack of availability of coconut sap this so called toddy is made mostly of a chemical cocktail. On top of this, there are concerns on whether most toddy industry players are meeting their tax obligations. Thus, the recent tax increase on beer has pushed a significant segment of consumers into a product that is – to put it mildly – unhygienic & an industry that may not necessarily pay its taxes in full.”

“Arrack is the other sector that has gained somewhat from the beer industry’s loss. Whilst the excise tax on strong beer was increased by 70%, the tax increase on arrack was very significantly lower at 25%. Since beer is acknowledged as the least harmful alcoholic beverage, the wide disparity in the tax increase between the two products and the preferential treatment meted out to a beverage with a higher alcohol content is questionable at best. Post the recent excise duty adjustments, Sri Lanka is in a unique position; in this country, the tax per ml of alcohol is inversely proportionate to the alcohol content. Thus in per ml of alcohol terms, mild beer attracts a higher tax than strong beer which in turn attracts a higher tax than arrack. In addition, some players in the arrack industry are perceived to walk a fine line with regards to their tax payments, similar to the toddy industry.”