DESK

RESEARCH ON

Alcohol
Taxation
IN SRI LANKA
DESK RESEARCH ON ALCOHOL TAXATION IN SRI LANKA

Sri Lanka’s alcohol industry products (their consumption, sale,production,

processing and importation etc.) are subject to several types of taxation that
include excise taxes, cess leviesand import duties etc.

This report will focus on the taxation of locally produced and imported alcoholic
beverages and the role of taxation in determining the costs and harms associated
with alcohol consumption in Sri Lanka. For locally produced liquor, the report will
mainly focus on the excise duty imposed by the Department of Excise, while for
imported liquor, it will focus on the import duty imposed by Sri Lanka Customs.
The report will not cover aspects related to the supply of raw materials for the
production of alcohol and for industrial purposes and its taxation in Sri Lanka
(e.g., taxation of methanol, isopropyl and ethanol etc.). The report also integrates
insights gained from two Key Informant Interviews (KIIs) with experts on alcohol
taxation in Sri Lanka.

1. WHAT IS THE CURRENT ALCOHOL TAXATION SYSTEM IN

SRI LANKA?

Locally Produced Liquor

The production and sale of locally produced alcoholic beverages in Sri Lanka are
mainly subjected to an excise duty. Primarily governed by the Excise Department
of Sri Lanka, the excise duties currently in place in the country are considered
a volumetric tax system (or specific tax), because the amount of excise duty
imposed is dependent on the volume of alcohol contained in the product.

Previously, alcohol in Sri Lanka was taxed under the proof litre and bulk litre
system. However, owing to its complexity, the proof litre system was abandoned
in 2017. Currently, the systems used to tax different alcoholic beverages are as
follows:

a. Absolute Litre System (ABV):

◆ The ABV system of taxation is applied to the production of the

following beverages: all types of arrack (molasses, coconut &
processed, palmyra and special arrack), locally made foreign liquor,
local wine, malt liquor above and below 5% (beer), and sake.

◆ Under this system, alcoholic beverages are taxed by the specific

volume of alcohol contained in the product. For example, if a type
of arrack is produced with an alcohol content of 40%, that means
10 litres of arrack contains 4 litres of alcohol; and it is this specific
content of alcohol (4 litres) that is subject to tax.

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 DESK RESEARCH ON ALCOHOL TAXATION IN SRI LANKA

b. Bulk Litre System:

◆ Under this system, alcoholic beverages are taxed by the entire volume
of the beverage contained in the product. This system is applicable
to alcoholic beverages that contain typically low concentrations of
alcohol (5.5%-7.5%).

◆ Currently, this taxation system is only applied to the production of

bottled toddy, which takes up a very small market share of the liquor
industry1.

The current tax schedule2 for different alcoholic beverages produced in the
country is as follows:

Exhibit 1: Current tax rates for locally produced liquor

Alcohol Beverage Unit of taxation Tax Rate (Rs.)

Molasses Arrack 4,460/=
Coconut & Processed Arrack 4,460/=
Palmyrah Arrack 4,460/=
4,180/=
Special Arrack
For each absolute litre
Locally made foreign liquor 4,570/=
Wine 900/=
Sake 3300/=
Malt Liquor (beer) below 5% 3300/=
Malt Liquor (beer) above 5% 3,450/=
Bottled Toddy For each bulk litre 25/=

Source: Department of Excise, Sri Lanka

1
See question 4 for details.
2
As at 21st February 2022

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DESK RESEARCH ON ALCOHOL TAXATION IN SRI LANKA

Imported Liquor

The main tax imposed on imported liquor is Customs Duty which is collected by
Sri Lanka Customs (SLC). The system used to tax imported liquor is based on the
bulk litre system. Other taxes imposed on imported liquor by SLC include cess,
Ports and Airports Development Levy (PAL) and VAT.

The current tax schedule3 for different taxes administered by SLC on alcoholic
beverages imported into the country, by HS Code, is as shown in Exhibit 2.
Therefore, under this combined system the total taxes amounts to around 15% of
the sale price (assuming the sale price is a 50-60% markup from the CIF value),
plus the bulk litre amount specified in Exhibit 2.

Exhibit 2: Current tariff rates imposed by SLC for imported liquor 4

Description

Customs
HS Code

General

Cess7
Duty

PAL6
VAT5
Unit

Per bulk
2203 Beer made from malt 550/= 8% 10% -
litre

Wine of fresh grapes,

including fortified wines;
Per bulk
2204 grape must
litre
440/= 8% 10% -
other than that of heading
20.09.

Vermouth and other wine of

fresh grapes flavoured with Per bulk
2205
plants or aromatic litre
440/= 8% 10% -
substances.

Other fermented beverages

(for example, cider, perry,
mead, sake); mixtures of
fermented beverages and Per bulk
2206
mixtures of fermented litre
440/= 8% 10% -8
beverages and non-alcoholic
beverages, not elsewhere
specified or included
Undenatured ethyl alcohol of
an alcoholic strength by
Per bulk
2208 volume of less than 80% vol;
litre
2750/= 8% 10% -
spirits, liqueurs and other
spirituous beverages.

Source: Chapter 22, Sri Lanka Customs National Imports Tariff Guide – 2021, incorporating
amendments up to 11.03.2022

3
As at 31st March 2022 6 Calculated as CIF Value * Rate of PAL
4 For details on tariff rates for HS Codes at the 6-digit level, 7 Calculated as Quantity * unit rate of Cess levy OR
see Annex A [CIF Value in LKR + 10% of CIF Value in LKR] * Rate
5 Calculated as [CIF Value in LKR + 10% of CIF Value in of Cess Levy
LKR + Customs Duty + Cess Levy + PAL + Excise (Special 8 Some HS codes at the 6-digit level are levied a
Provisions) Duty ] * Rate of VAT Cess levy. Fur further details see Annex A

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 DESK RESEARCH ON ALCOHOL TAXATION IN SRI LANKA

Imported liquor is also subject to an excise duty, which is imposed within the
territory of Sri Lanka Customs, but collected by the Department of Excise when
such liquor is brought into the country. The system used to charge an excise
duty on imported liquor is by the bulk litre system.

Government Revenue from Alcohol Taxation

Excise duties on locally produced liquor is an important source of government

revenue. In fact, government revenue generated from excise duties on liquor
have been the second largest contributor to domestic consumption-based
taxes over the years (Exhibit 3)

Exhibit 3: Government tax revenue by source (Rs. Millions)

2015 2016 2017 2018 2019 2020

Income Tax 262,583 258,857 274,562 310,449 427,700 268,249

Domestic 347,632 419,897 530,838 547,568 533,801 370,197

Consumption
Based Tax
VAT - Domestic 130,527 168,134 275,346 282,488 273,963 148,061

NBT - Domestic 28,044 39,029 49,715 51,192 52,446 2,036

Tax on Liquor 105,234 120,238 113,684 113,944 115,443 120,990

Tax on Cigarettes/ 80,015 88,792 86,002 92,243 87,400 94,383

Tobacco
Other (Excise) 3,812 3,704 6,091 7,701 4,549 4,727

Import Based Taxes 704,093 738,814 821,253 809,844 711,927 549,554

Import Duties 132,189 156,487 136,501 96,991 98,427 114,183

VAT - Imports 89,173 115,336 168,393 179,163 169,914 85,725

NBT - Imports 16,960 18,395 19,320 20,165 18,227 315

PAL 58,644 88,823 102,360 113,950 112,174 115,442

SCL 52,276 55,825 71,402 75,807 70,364 82,709

Cess Levy 46,289 61,730 59,554 53,369 50,703 49,309

Petroleum - Excise 45,092 55,719 73,983 66,318 61,740 53,111

Motor Vehicles - 263,470 186,499 189,740 204,081 130,378 48,760

Excise
License and Other 41,471 46,121 43,525 44,457 61,497 28,542

Telecommunication 33,358 35,976 33,399 28,326 18,261 13,130

Levy
Other 8,113 10,145 10,126 16,131 43,236 15,412

Total Tax Revenue 1,355,779 1,463,689 1,670,178 1,712,318 1,734,925 1,216,542

Source: Annual Reports 2016-2020, Ministry of Finance

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DESK RESEARCH ON ALCOHOL TAXATION IN SRI LANKA

Exhibit 4 below summarizes the total tax income generated by the government
from alcohol and tobacco production between 2012-2020.

Exhibit 4: Total excise tax revenue from locally produced liquor and cigarettes9

Excise Tax Revenue from Excise Tax Revenue from

Cigarettes Liquor

Year Rs. Bn % Change Rs. Bn % Change

2012 53.9 8.7 59.9 7.3

2013 58.6 8.7 66 10.2

2014 57.2 -2.3 69.1 4.6

2015 80 39.9 105.9 53.3

2016 88.8 11.0 120.8 14.1

2017 86 -3.2 113.7 -5.9

2018 92.2 7.2 113.9 0.2

2019 87.4 -5.2 115.4 1.3

2020 94.3 8.0 121 4.9

Source: Annual Reports 2020, Ministry of Finance

In 2020, revenue from the production of alcohol declined because of bans placed
on the sale of liquor during the coronavirus pandemic-related lockdowns. The
Commissioner General of Excise claimed that, as a consequence of this, the
Department of Excise had lost an accumulated LKR 600 million per day in 202010.

Government tax revenue collected by Sri Lanka Customs through imported

alcohol is given below.

On the 17th of August 2020, Verité Research filed a Right to Information request
(RTI) with the Sri Lanka Customs, requesting for information on revenue statistics
for all taxes administered and collected by Sri Lanka Customs, by product HS
Code, from January 2016 to July 2020. Exhibit 5 below summarizes the response
received from SLC for HS Codes and sub-HS Codes for 2203-2206 and 2208

9
Hard liquor & malt liquor production after 2017 is in absolute litres
10
Suresh Perera, ‘Excise Department grapples with billions of rupees in lost tax revenue’,
[Link], available at [Link]
tax-revenue/ [Last accessed 31st January 2022]

05
 Exhibit 5: Total tax collected by Sri Lanka Customs from imported alcohol between 2017-2020 for HS codes at the 6-digit level (Figures in Rs.)

HS Code Description 2017 2018 2019 2020

22.03 Beer made from malt - - - -
2203.00.10 Canned beer less than 350 ml 124,407 8,346,014 5,402,249 4,238,890
2203.00.20 Canned beer 350 ml or more 120,229 761,157 59,305 -
2203.00.90 Other 181,988,849 152,176,703 127,838,141 41,142,203
Wine of fresh grapes, including fortified wines; grape must
22.04 - - - -
other than that of heading 20.09.
2204.10.00 Sparkling wine 61,593,374 44,830,875 50,942,993 11,735,579
Other wine; grape must with fermentation prevented or
arrested by the addition of alcohol
2204.21.00 In containers holding 2 l or less 673,666,716 667,815,453 705,455,361 255,425,917
2204.22.00 In containers holding more than 2 l but not more than 10 l - 304,153 209,735 30,694
2204.29.00 Other 158,803,736 19,665,365 11,298,300 3,738,048
2204.30.00 Other grape must 165,758 53,819 7,758,252 2,406
Vermouth and other wine of fresh grapes flavoured with
22.05 - - - -
plants or aromatic substances.
2205.10.00 In containers holding 2 l or less 168,115,218 126,077,538 111,961,675 23,352,901
2205.90.00 Other 14,587,161 5,005,942 2,109,699 -
Other fermented beverages (for example, cider, perry,
mead, sake); mixtures of fermented beverages and
22.06 - - - -
mixtures of fermented beverages and non-alcoholic
beverages, not elsewhere specified or included.
2206.00.10 Non-alcoholic beverages 32,116 200,519 136,579 46,645

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DESK RESEARCH ON ALCOHOL TAXATION IN SRI LANKA
07
HS Code Description 2017 2018 2019 2020
2206.00.90 Other 29,480,768 62,413,134 48,290,215 9,010,091
2206.00.91 Palmyrah Toddy - - - -
2206.00.99 Other - - - 3,998,997
Undenatured ethyl alcohol of an alcoholic strength by
22.08 volume of less than 80% vol; spirits, liqueurs and other - - - -
spirituous beverages.
2208.20.00 Spirits obtained by distilling grape wine or grape marc 98,558,915 187,799,848 68,891,293 51,580,824
2208.30.00 Whiskies 675,526,928 811,550,221 875,209,786 190,046,651
Rum and other spirits obtained by distilling fermented
2208.40
sugar-cane products
2208.40.10 Rum 37,579,058 63,511,827 77,537,543 7,872,325
DESK RESEARCH ON ALCOHOL TAXATION IN SRI LANKA

2208.40.90 Other 2,652,914 9,260,336 117,930,808 3,433,157

2208.50.00 Gin and Geneva 75,531,885 140,991,721 123,693,942 32,396,008
2208.60.00 Vodka 238,781,459 292,223,440 338,735,522 44,424,541
2208.70.00 Liqeurs and cordials 162,368,275 193,801,569 131,271,042 42,998,658
2208.90 Other
2208.90.10 Coconut based arrack 9,321,367 11,119,675 8,691,091 3,685,696
2208.90.20 Palmyrah based arrack - - - -
2208.90.90 Other 19,688,854 51,187,522 78,244,496 32,276,739
Total 2,608,687,987 2,849,096,831 2,891,668,027 761,436,970

Source: Information obtained through RTI request filed with Sri Lanka Customs, 17th August 2021
 DESK RESEARCH ON ALCOHOL TAXATION IN SRI LANKA

2. WHAT ARE THE ACTS AND REGULATIONS RELATED TO

ALCOHOL TAXATION?
The main acts and regulations that govern the taxation of alcohol in Sri Lanka
are:

1) The Excise Ordinance of Sri Lanka

2) The Value Added Tax Act
3) Customs Ordinance
4) Sri Lanka Export Development Act
5) Ports and Airports Development Levy Act

The Excise Ordinance of Sri Lanka

According to the Excise Ordinance of Sri Lanka,

◆ Excise duties are regarded as a duty on the manufacture and import/export

or imposed at the time of manufacture or import/export of excisable articles.11

◆ The relevant Minister (generally, the Minister in charge of the subject of

finance) is empowered to make orders to impose / revise/vary/rescind a duty
on any ‘excisable article’ that is:

i) permitted to be manufactured under licenses granted in

accordance with the Excise Ordinance;12
ii) permitted to be manufactured in liquor manufactories
established under the Excise Ordinance;13 and
iii) permitted to be imported into or exported out of Sri Lanka.14

◆ The definition of ‘excisable article’ includes all types of liquor, such as, wine,
spirits, toddy, beer, and liquid consisting of or containing alcohol.15
◆ The collection of excise revenue is carried out by the Commissioner-General
of Excise in his/her capacity as the head of the Excise Department which is
the principal government agency responsible for the control and regulation
of the import, export, transport, manufacture, sale, and possession of liquor/
alcohol.16
◆ The importation of foreign liquor shall be carried out only after obtaining
a permit for the importation of foreign liquor. If foreign liquor is imported
to Sri Lanka without a permit, the Commissioner General of Excise has the
power to levy a surcharge of 3% on the CIF (Cost, Insurance, Freight) value in
addition to the excise duty, or confiscate the stocks so imported.17

11
Sections 22(1), 22(2)(b) and 22(2)(c), Excise Ordinance
12
Section 22(1)(a), Excise Ordinance
13
Section 22(1)(c), Excise Ordinance
14
Section 22(1)(d), Excise Ordinance
15
Section 2, Excise Ordinance
16
Section 7, Excise Ordinance.
17
Excise Notification, No.08/2019, [Link]

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DESK RESEARCH ON ALCOHOL TAXATION IN SRI LANKA

The Value Added Tax (VAT) Act

◆ The VAT, by way of the Value Added Tax Act18, is imposed on alcoholic
beverages when they are (i) imported and (ii) sold after some value addition.
It is regarded as a consumption tax that is imposed at the point of sale.
◆ Alcohol is a taxable item. Therefore, as per Sec. 2 of the VAT Act, VAT should
be paid at the point of importation and at each stage of the distribution
process (wholesale and retail) as well.
◆ Thus, in almost all instances where alcohol is sold or imported, alcohol
products are subject to a VAT as specified under the Value Added Tax Act.
◆ The overall collection of VAT is the responsibility of the Commissioner-
General of Inland Revenue.

The Customs Ordinance

◆ The customs duty, by way of the Customs Ordinance19, is imposed on all
“goods, wares, and merchandise” imported into or exported out of the
country. The Customs levy on the imported item depends on the relevant
HS Code of the item.
◆ As such, the duty is imposed on alcohol products at the point of entry into
Sri Lanka by Sri Lanka Customs and is collected by a Principal Collector of
Customs.

The Export Development Act

◆ The cess levy, by way of the Export Development Act20, is levied based on the
provisions of the Customs Ordinance, on all goods, wares and merchandise
imported into or exported out of the country, in addition to any import duty
or export duty or other cess levied under any other law. Alcoholic beverages
are also included in this category.
◆ The cess levy is collected by the Principal Collector of Customs and will
thereafter be paid by the Principal Collector of Customs on a monthly basis
to the credit of the Export Development Fund.

The Ports and Airports Development Act

◆ The Ports and Airports Development ActThe PAL duty, by way of the Ports
and Airports Development Act21, is levied on the cost, insurance and freight
value (CIF) of every article that originates from outside Sri Lanka and is
imported into the country.
◆ The levy collected under this Act is deemed to be a customs duty payable
under the Customs Ordinance and shall be payable as per the provisions in
the said Ordinance.22

18
Section 2, Value Added Tax Act.
19
Section 10, Customs Ordinance
20
Section 14, Export Development Levy
21
Section 2, The Ports and Airports Development Act
22
Sec. 8, The Ports and Airports Development Act

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 DESK RESEARCH ON ALCOHOL TAXATION IN SRI LANKA

3. WHAT ARE THE GOVERNMENT DEPARTMENTS AND

MINISTRIES VESTED WITH THE AUTHORITY TO TAKE
DECISIONS ON ALCOHOL TAXATION?
There are mainly five government agencies that play an active role in making
decisions with regard to alcohol taxation in Sri Lanka. They are:

(a) The Ministry of Finance

(b) The Department of Fiscal Policy
(c) Sri Lanka Customs
(d) The Department of Excise
(e) The National Authority of Tobacco and Alcohol (NATA)

The Ministry of Finance

◆ The Ministry of Finance is the body responsible for all macro-economic
policies and the public finance management of the country, including
implementing the annual budget, taxation policies etc. As made evident in
Question 2, the Minister of Financehas the authority to amend/rescind and
impose duties on alcoholic beverages.

The Department of Fiscal Policy

◆ The Department of Fiscal Policy is the arm of the Ministry of Finance that
is responsible for the implementation of the government’s fiscal policy,
including formulating tax policies in the country. The department is also
responsible for enacting the orders on excise duties decided on by the
Minister of Finance on behalf of the Ministry.

Sri Lanka Customs

◆ Sri Lanka Customs is responsible for the execution of the Customs Ordinance
and thereby the collection of customs revenue imposed on imported and
exported merchandise and goods in and out of the country. It is thereby the
principal collector of taxes imposed on imported alcohol.
◆ Sri Lanka Customs classifies alcoholic beverages to be those products with
HS Code headings between the ranges of 2203-2206 and 2208.
◆ Apart from the customs levy, Sri Lanka Customs also collects the following
taxes: VAT, PAL, Special Commodity Levy (SCL), excise (special provisions)
duty, and cess levy on applicable imported products on behalf of other
government institutions.

The Department of Excise

◆ The Department of Excise is responsible for the administration of the
taxation of both locally produced liquor and imported liquor under the
Excise Ordinance and its amendments.
◆ The decisions made with regard to the rates of taxation on alcohol by the
Ministry of Finance and the Department of Fiscal Policy is always taken
in consultation with or based on the recommendations provided by the
Department of Excise.
◆ The department is also the body responsible for the collection of excise
revenue generated from the imposition of such duties.

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DESK RESEARCH ON ALCOHOL TAXATION IN SRI LANKA

◆ In addition to this, the department is also responsible for the detection of

excise crimes, tobacco and narcotic crimes, and issuing licenses for the
distillation, manufacture, wholesaling, retailing or importation of alcohol
products in the country

The National Authority of Tobacco and Alcohol (NATA)

◆ The taxation of alcohol is also influenced by the National Authority of
Tobacco and Alcohol (NATA), which serves to identify and eliminate tobacco
and alcohol-related harm through the avenues of its production, marketing
and consumption.
◆ NATA provides recommendations on legal, taxation, administrative and
other measures necessary for the implementation of the National Policy on
Tobacco and Alcohol.

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 DESK RESEARCH ON ALCOHOL TAXATION IN SRI LANKA

4. HOW MANY ALCOHOL MANUFACTURERS ARE THERE

IN THE COUNTRY, WHAT IS THE MARKET SHARE
OF EACH COMPANY AND HOW MANY LITRES ARE
MANUFACTURED EACH YEAR?
Locally Produced Liquor

As per the latest available data in 2019, Exhibit 6 below lists the total quantity
of alcohol produced for the year 2019 by alcoholic beverage. Arrack production
takes up the largest share of the industry.

Exhibit 6: Total quantity of locally produced alcohol in 2019 (In absolute litres)

Alcohol Beverage Year 2019

Arrack 22,409,379

Country Made Foreign Liquor 1,866,572

Malt Liquor (Beer) 12,119,404

Wine 4,205

Sake 190,233

Bottled Toddy* 4,068,270

*In bulk litres

Source: Department of Excise, Sri Lanka

The total number of alcohol manufacturers in the country has varied over
the years. In Sri Lanka, the number of alcohol manufacturers differs based
on the alcoholic beverage manufactured. The market share of each alcohol
manufacturer has also varied acrossdifferent alcoholic beverages over the years.

Exhibits 7-12 detail the key manufacturers of arrack (molasses, coconut and
processed, palmyra and special arrack), country made foreign liquor, malt liquor
(beer), wine, sake and bottled toddy. It also details their market share in terms of
production of each alcoholic beverage, and the total number of litres produced
between 2014 and 2019.

12
13
Arrack Production

Exhibit 7: Manufacturers of arrack, number of litres produced and market share (%) in 2014-201923

2014 2015 2016 2018 2019

Name of Manufacturer
Quantity Quantity Quantity Quantity Quantity
% % % % %
(PL) (PL) (PL) (PL) (PL)
Periceyl Company (Pvt) Ltd 1,589,582 4.1 1,989,799 4.2 2,077,665 4.0 483,446 2.1 444,271 2.0

Synergy Distillerires 104,150 0.3 34,992 0.1 34,745 0.1 47,034 0.2 61,325 0.3

Scotland Distilleries 155,265 0.4 291,608 0.6 293,280 0.6 136,515 0.6 145,236 0.6

Hingurana Distilleries 751,819 1.9 660,784 1.4 528,230 1.0 500,121 2.1 53,468 0.2
DESK RESEARCH ON ALCOHOL TAXATION IN SRI LANKA

International Distilleries Ltd (IDL) 4,218,453 10.8 4,447,237 9.3 4,156,655 8.0 1,762,042 7.5 1,611,407 7.2

Uva Glen Company (Pvt) Ltd 129,936 0.3 162,994 0.3 187,298 0.4 126,297 0.5 107,359 0.5

Manori Lanka (pvt) Ltd 68,488 0.2 63,763 0.1 97,519 0.2 32,175 0.1 11,895 0.1

Distilleries Company of Sri Lanka

26,896,665 68.7 30,588,247 64.0 33,689,658 64.6 16,890,254 72.3 16,445,953 73.4
Ltd

Mendis- Moragalla - 0.0 - 0.0 - 0.0 - 0.0 121,649 0.5

V.A. Distilleries (Pvt) Ltd 267,808 0.7 350,183 0.7 586,353 1.1 359,990 1.5 342,365 1.5

Nippon Expo Company Ltd 149,628 0.4 186,479 0.4 201,139 0.4 128,554 0.6 128,674 0.6

23
Figures for 2014-2016 are in proof litres. Figures in 2018 and 2019 are in absolute litres.
 2014 2015 2016 2018 2019
Name of Manufacturer
Quantity Quantity Quantity Quantity Quantity
% % % % %
(PL) (PL) (PL) (PL) (PL)
W.M Mendis and Company 1,491,077 3.8 5,019,094 10.5 5,466,856 10.5 515,558 2.2 536,715 2.4

Rockland Distilleries Ltd 2,305,449 5.9 2,317,077 4.8 2,826,533 5.4 1,247,498 5.3 1,183,017 5.3

Randiya Ltd 48,111 0.1 10,338 0.0 - 0.0 - 0.0 16,548 0.1

Acme Lanka Ltd 564,882 1.4 1,260,965 2.6 1,522,127 2.9 892,352 3.8 927,059 4.1

Randenigala Distilleries 226,253 0.6 85,507 0.2 137,832 0.3 70,591 0.3 82,156 0.4

Classic Distilleries Ltd 64,828 0.2 81,838 0.2 73,639 0.1 32,520 0.1 32,422 0.1

Wayamba Distilleries (Pvt) Ltd 102,049 0.3 1,808 0.0 - 0.0 - 0.0 - 0.0

Distilleries Company Ltd Dompe - 0.0 - 0.0 - 0.0 - 0.0 119,630 0.5

Royal Casks (Pvt.) Ltd. - 0.0 182,990 0.4 218,762 0.4 91,862 0.4 - 0.0

Thikkam 2,005 0.0 2,033 0.0 - 0.0 7,805 0.0 1,163 0.0

Walikamam 10,494 0.0 24,550 0.1 27,454 0.1 25,078 0.1 30,760 0.1

Varani 17,782 0.0 21,304 0.0 26,611 0.1 8,319 0.0 6,307 0.0

Total 39,164,724 47,783,590 52,152,357 23,358,011 22,409,379

Note: Green denoted top 5 manufacturers for the year.

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DESK RESEARCH ON ALCOHOL TAXATION IN SRI LANKA
15
The largest manufacturers of arrack in the country over the years has been Distilleries Company Sri Lanka Ltd. The company
comprised an average of 68.6% of the market share for arrack across 2014-2016. They are followed by International Distilleries Ltd
(IDL), which has comprised an average 8.6% of the market share for the same period.

Country Made Foreign Liquor Production

Exhibit 8: Top manufacturers of country made foreign liquor, number of litres produced and market share (%) in 2014-2019

2014 2015 2016 2018 2019

Name of Manufacturer
Quantity Quantity Quantity Quantity Quantity
% % % % %
(PL) (PL) (PL) (PL) (PL)
Periceyl Company (pvt) Ltd (New
940,204 21.7 804,766 20.1 922,386 23.4 486,469 26.5 431,053 23.1
Warehouse- Seeduwa)

Hingurana Distilleries 120,687 2.8 20,048 0.5 - 0.0 12,889 0.7 7,063 0.4
DESK RESEARCH ON ALCOHOL TAXATION IN SRI LANKA

International Distilleries Ltd (IDL) 1,691,527 39.0 1,615,990 40.4 1,526,250 38.8 707,756 38.6 755,814 40.5

V.A. Distilleries (Pvt) Ltd

- 0.0 - 0.0 6,431 0.2 52,035 2.8 145,855 7.8

Nippon Lanka Company Ltd - 0.0 - 0.0 - 0.0 - 0.0 40 0.0

W.M Mendis & Company Ltd 249,354 5.7 296,226 7.4 288,205 7.3 52,396 2.9 32,372 1.7

Rockland Distilleries Ltd 1,316,244 30.3 1,262,200 31.6 1,193,597 30.3 522,576 28.5 494,376 1.7

Nippon Expo 509 0.0 - 0.0 - 0.0 422 0.0 - 0.0

Sri Lanka Distilleries Ltd. 20,795 0.5 - 0.0 - 0.0 - 0.0 - 0.0

Total 4,339,320 3,999,230 3,936,868 1,834,542 1,866,572

 The largest manufacturer of country made foreign liquor is International Distilleries Ltd., taking up an average of 39.4% of the
market share with its production between 2014-2019. Rockland Distilleries Ltd. is the 2nd largest manufacturer, with an average of
29.4% of the market share for country made foreign liquor in the same period.

Beer Production

Exhibit 9: Manufacturers of beer (below and above 5%), number of litres produced and market share (%) in 2014-2019 24

2014 2015 2016 2018 2019

Name of Manufacturer
Quantity Quantity Quantity Quantity Quantity
% % % % %
(PL) (PL) (PL) (PL) (PL)
Lion Brewery Ltd 103,086,656 82.8 106,263,283 84.6 33,204,296 63.7 9,644,057 85.7 10,635,776 87.8

Asia Pacific Brewery Lanka Ltd.

(Heineken Lanka)
16,972,630 13.6 19,386,132 15.4 18,956,774 36.3 1,613,880 14.3 1,483,628 12.2

Millers Brewery Ltd. 4,461,453 3.6 - 0.0 - 0.0 - 0.0 - 0.0

Total 124,520,738 125,649,416 52,161,070 11,257,937 12,119,404

The largest manufacturer of malt liquor or beer in Sri Lanka is Lion Brewery Ltd. They produced an average of 80.9% of the market
share for beer in 2014-2019.

16
DESK RESEARCH ON ALCOHOL TAXATION IN SRI LANKA
17
Wine Production

Exhibit 10: Manufacturers of wine, number of litres produced and market share (%) in 2014-2019 25

2014 2015 2016 2018 2019

Name of Manufacturer
Quantity Quantity Quantity Quantity Quantity
% % % % %
(PL) (PL) (PL) (PL) (PL)
Wine Company - Local 4,493 89.5 2,416 50.0 4,539 48.9 3,842 100.0 4,205 100.0

Lanka Wine (Pvt) Ltd - Foreign - 0.0 2,416 50.0 4,539 48.9 - 0.0 - 0.0

Mayfield(Pvt) Ltd 528 10.5 - 0.0 203 2.2 - 0.0 - 0.0

Total 5,022 4,833 9,281 3,842 4,205

DESK RESEARCH ON ALCOHOL TAXATION IN SRI LANKA

Across the years, the largest manufacturer of wine in the country has been the Lanka Wine Company - local. They have produced
an average share of 77.7% of wine in the market from 2014-2019.

24
Figures for 2014 in proof litres, 2015 in litres, 2016 in bulk litres and 2018-2019 in absolute litres.
25
Figures for 2014-2016 are in proof litres. Figures in 2018 and 2019 are in absolute litres.
 Sake Production

Exhibit 11: Manufacturers of sake, number of litres produced and market share (%) in 2014-2019 26

2014 2015 2016 2018 2019

Name of Manufacturer
Quantity Quantity Quantity Quantity Quantity
% % % % %
(PL) (PL) (PL) (PL) (PL)
Nippon Lanka (Royal Casks) - - 136,899 100 703,469 100 182,960 100 190,233 100

Total - - 136,899 703,469 182,960 190,233

Toddy Production

Exhibit 12: Manufacturers of bottled toddy, number of litres produced and market share (%) in 2014-2019 27

2014 2015 2016 2018 2019

Name of Manufacturer
Quantity Quantity Quantity Quantity Quantity
% % % % %
(PL) (PL) (PL) (PL) (PL)
Eagle Bottled Toddy -
Madampe
818,430 8.4 840,635 8.6 847,315 8.5 404,685 7.8 334,385 8.2

Total Singha Bottled Toddy -

Madampe
1,051,420 10.8 1,080,320 11.1 1,106,065 11.1 479,240 9.3 418,921 10.3

26
Figures for 2014-2018 in bulk litres. Figures in 2019 in absolute litres.
27
Figures for 2014 in proof litres, 2015 in litres, 2016 in bulk litres and 2018-2019 in absolute litres

18
DESK RESEARCH ON ALCOHOL TAXATION IN SRI LANKA
19
2014 2015 2016 2018 2019
Name of Manufacturer
Quantity Quantity Quantity Quantity Quantity
% % % % %
(PL) (PL) (PL) (PL) (PL)
Nemta- Madampe 686,750 7.0 715,255 7.3 729,850 7.3 382,855 7.4 129,660 3.2

New Manori Lanka- Madampe - 0.0 - 0.0 - 0.0 744,265 14.4 883,760 21.7

T.S.R Bottled Toddy- Marawila 1,030,545 10.5 1,079,940 11.1 1,083,570 10.9 487,380 9.4 486,993 12.0

Shooting Star Bottled Toddy-

Marawila
843,630 8.6 721,725 7.4 738,860 7.4 465,980 9.0 357,510 8.8

Camel Bottled Toddy-Colombo 32,835 0.3 35,635 0.4 31,250 0.3 11,730 0.2 10,520 0.3

Three Line Bottled Toddy-Badulla 179,672 1.8 215,301 2.2 250,986 2.5 470,740 9.1 340,502 8.4
DESK RESEARCH ON ALCOHOL TAXATION IN SRI LANKA

New Commander Bottled Toddy-

210,795 2.2 221,600 2.3 215,540 2.2 36,650 0.7 20,840 0.5
Chilaw

Jaffna- Jaffna 24,058 0.2 35,273 0.4 25,765 0.3 27,198 0.5 31,853 0.8

Kopai- Jaffna 24,616 0.3 25,781 0.3 40,464 0.4 63,809 1.2 48,195 1.2

Chankanei-Chankanei 104,851 1.1 163,972 1.7 143,345 1.4 77,812 1.5 103,576 2.5

Manipai-Chankanei 21,869 0.2 66,706 0.7 63,622 0.6 29,483 0.6 16,982 0.4

Pandatiarippu-Chankanei 64,648 0.7 103,338 1.1 73,251 0.7 55,148 1.1 43,994 1.1

Kayts- Chankanei 23,193 0.2 42,141 0.4 - 0.0 41,240 0.8 26,855 0.7
 2014 2015 2016 2018 2019
Name of Manufacturer
Quantity Quantity Quantity Quantity Quantity
% % % % %
(PL) (PL) (PL) (PL) (PL)
Kareinagar-Chankanei 35,476 0.4 55,473 0.6 66,284 0.7 50,417 1.0 81,826 2.0

Valikamam-Chankanei (Nawali) 21,139 0.2 30,103 0.3 - 0.0 46,213 0.9 8,926 0.2

Chawakachcheri-Chawakachcheri 42,753 0.4 68,652 0.7 86,174 0.9 87,113 1.7 44,484 1.1

Kodikamam-Chawakachcheri 13,698 0.1 61,598 0.6 88,503 0.9 90,213 1.7 23,559 0.6

Warani (Chawakachcheri) - 0.0 - 0.0 - 0.0 41,601 0.8 2,549 0.1

Chunnaham- Mallakam 79,468 0.8 94,041 1.0 87,698 0.9 96,510 1.9 46,113 1.1

Kondawil- Mallakam 41,101 0.4 40,518 0.4 26,674 0.3 50,653 1.0 39,744 1.0

Thellipalai- Mallakam 76,552 0.8 78,624 0.8 42,950 0.4 74,679 1.4 39,270 1.0

Atchuvely- Mallakam - 0.0 27,302 0.3 39,822 0.4 38,704 0.8 28,463 0.7

Kilinochchi- Kilinochchi
18,313 0.2 - 0.0 227,968 2.3 361,238 7.0 208,086 5.1
(Konawil)
Thunukai- Kilinochchi
- 0.0 4,323 0.0 6,331 0.1 117,054 2.3 5,598 0.1
(Pandiynakulam)

Pudukuduiripuppu-Mullaittivu - 0.0 50,310 0.5 54,533 0.5 100,831 2.0 27,244 0.7

Mullai West- Mullaittivu - 0.0 - 0.0 71,253 0.7 81,875 1.6 64,365 1.6

20
DESK RESEARCH ON ALCOHOL TAXATION IN SRI LANKA
21
2014 2015 2016 2018 2019
Name of Manufacturer
Quantity Quantity Quantity Quantity Quantity
% % % % %
(PL) (PL) (PL) (PL) (PL)
Mullai East- Mullaittivu - 0.0 - 0.0 33,719 0.3 52,898 1.0 43,266 1.1

Poonagari- Mullaittivu - 0.0 - 0.0 1,049 0.0 90,720 1.8 95,467 2.3

Mullaittivu South- Mullaittivu - 0.0 - 0.0 - 0.0 - 0.0 22,386 0.6

Pallai- Kilinochchi - 0.0 - 0.0 - 0.0 - 0.0 32,381 0.8

Wayamba Super Bottled

1,163,580 11.9 1,199,320 12.3 1,234,748 12.4 - 0.0 - 0.0
Toddy Manufactury-Madampe
Commander Bottled Toddy -
231,495 2.4 238,680 2.4 232,887 2.3 - 0.0 - 0.0
Marawila
DESK RESEARCH ON ALCOHOL TAXATION IN SRI LANKA

A.M.P Bottled Toddy-

258,991 2.7 272,948 2.8 - 0.0 - 0.0 - 0.0
Kochchikade

Empire Toddy Manufactory - 0.0 3,650 0.0 225,955 2.3 - 0.0 - 0.0

Point Pedro Palm

7,434 0.1 21,811 0.2 - 0.0 - 0.0 - 0.0
Development Cooperative
A.M.P Bottled Toddy
- 0.0 - 0.0 243,738 2.5 - 0.0 - 0.0
Manufactory
Golden Eagle Bottled Toddy
223,380 2.3 214,835 2.2 - 0.0 - 0.0 - 0.0
Manufactory
New T.S.R Bottled Toddy
686,910 7.0 - 0.0 - 0.0 - 0.0 - 0.0
Manufactory

Manori Lanka Pvt Ltd 1,369,165 14.0 1,439,635 14.8 1,462,260 0.0 - 0.0 - 0.0
 2014 2015 2016 2018 2019
Name of Manufacturer
Quantity Quantity Quantity Quantity Quantity
% % % % %
(PL) (PL) (PL) (PL) (PL)
Mulliyavalai Bottled Toddy
Manufactory
- 0.0 42,719 0.4 - 0.0 - 0.0 - 0.0

Konavil Bottled Toddy

- 0.0 61,750 0.6 - 0.0 - 0.0 - 0.0
Manufactory
Welanei Palm Development
19,222 0.2 22,878 0.2 - 0.0 - 0.0 0.0
Cooperative
Karaveddi Bottled Toddy
15,913 0.2 - 0.0 - 0.0 - 0.0 - 0.0
Manufactory
Horse Power Bottled Toddy-
347,625 3.6 366,135 3.8 364,080 3.7 - 0.0 - 0.0
Marawila

Total 9,769,524 9,742,926 9,946,508 5,158,933 4,068,270

The manufacturers of bottled toddy in Sri Lanka are numerous. However, Exhibit 12 highlights only the top manufacturers of
bottled toddy, led by T.S.R Bottled Toddy- Marawila, which has produced toddy across the years, accounting for an average market
share of 10.8%.

22
DESK RESEARCH ON ALCOHOL TAXATION IN SRI LANKA
23
Imported Liquor

Sri Lanka Customs does not release data on the quantity of liquor imported into the country by importing companies. However,
the Export Development Trade Statistics portal they maintain does provide data on the CIF value and quantity of liquor imported
into the country over the years. Exhibit 13 below summarizes the quantity of liquor imported into the country from 2017-2020. More
than 50% of the quantity of alcohol imported into the country comprises hard liquor varieties such as gin, whiskies, rum, arrack etc.
(HS Code 2208)

Exhibit 13: Quantity of liquor (in litres) imported into the country and market share (as a percentage of total quantity of liquor imported)
2017-2020

HS Code Description 2017 % 2018 % 2019 % 2020 %

22.03 Beer made from malt
2203.00.10 Canned beer less than 350 ml 264,670 4 661,260 8 338,206 5 176,087 5
2203.00.20 Canned beer 350 ml or more 37,266 1 155,952 2 109,233 2 274,818 7
DESK RESEARCH ON ALCOHOL TAXATION IN SRI LANKA

2203.00.90 Other 1,646,071 23 497,630 6 190,516 3 130,861 3

22.04 Wine of fresh grapes, including fortified wines; grape must other than that of heading 20.09
2204.10.00 Sparkling wine 69,433 1 74,611 1 78,240 1 71,075 2
Other wine; grape must with fermentation
prevented or arrested by the addition of
alcohol
2204.21.00 In containers holding 2 l or less 943,138 13 1,492,980 18 1,295,302 20 1,048,457 27
In containers holding more than 2 l but not
2204.22.00 - - 1,079 0 18 0 4,755 0
more than 10 l
2204.29.00 Other 299,580 4 213,915 3 74,535 1 43,724 1
2204.30.00 Other grape must 187 0 61 0 13,250 0 3 0
 HS Code Description 2017 % 2018 % 2019 % 2020 %
22.05 Vermouth and other wine of fresh grapes flavoured with plants or aromatic substances
2205.10.00 In containers holding 2 l or less 315,711 4 167,404 2 179,930 3 95,745 2
2205.90.00 Other 32,553 0 26,904 0 11,994 0 2,553 0
Other fermented beverages (for example, cider, perry, mead, sake); mixtures of fermented beverages and mixtures of
22.06
fermented beverages and non-alcoholic beverages, not elsewhere specified or included.
2206.00.10 Non alcoholic beverages 2,010 0 222,063 3 2,058 0 3 0
2206.00.90 Other 49,824 1 70,916 1 61,444 1 24,214 1
2206.00.91 Palmyrah Toddy - - - - - - - -
2206.00.99 Other - - - - - - 335 0
Undenatured ethyl alcohol of an alcoholic strength by volume of less than 80% vol; spirits, liqueurs and other spirituous
22.08
beverages.
Spirits obtained by distilling grape wine or
2208.20.00 316,849 4 452,846 6 331,737 5 180,068 5
grape marc
2208.30.00 Whiskies 2,670,821 37 2,767,7 34 2,924,127 46 1,398,815 36
Rum and other spirits obtained by distilling
2208.40
fermented sugarcane products
2208.40.10 Rum 117,097 2 117,235 1 127,315 2 97,895 3
2208.40.90 Other 50,146 1 6,380 0 57,762 1 3,562 0
2208.50.00 Gin and Geneva 64,967 1 91,538 1 99,930 2 81,338 2
2208.60.00 Vodka 251,350 3 315,625 4 295,529 5 141,131 4
2208.70.00 Liqeurs and cordials 72,276 1 79,951 1 94,318 1 63,417 2
2208.90 Other
2208.90.10 Coconut based arrack 15,571 0 13,670 0 4,176 0 8,424 0
2208.90.20 Palmyrah based arrack - - - - - - - -
2208.90.90 Other 18,544 0 792,449 10 32,852 1 16,781 0
Total 7,238,064 8,222,177 6,322,472 3,864,061

24
DESK RESEARCH ON ALCOHOL TAXATION IN SRI LANKA

Source: Sri Lanka Export Development Board Trade Statistics

DESK RESEARCH ON ALCOHOL TAXATION IN SRI LANKA

5. WHAT FACTORS DO THEY CONSIDER WHEN DECIDING

THE TAX?

Our interviews revealed that the following factors are considered when deciding
tax rates for different locally produced alcoholic beverages:

a. Effects on the collection of excise revenue

b. Effects on alcohol consumption patterns
c. Effects on the welfare of different alcohol beverage industries
d. Effects on the health of the adult drinking population

“The tax differentials between soft liquors such as beer against hard liquors such
as arrack, are often decided in a manner that will not result in a large shift between
soft liquor consumption to hard liquor consumption, or vice versa”(Official from
the Department of Excise, Sri Lanka)

However, neither the Ministry of Finance nor the Department of Excise conduct
timely consumption or welfare studies or surveys that assess the impact of
taxation on consumption, revenue, or health for the purpose of informing alcohol
tax decisions. Therefore, despite claiming to consider the above factors when
determining taxes, there is no evidence of it being put into practice.

As is made evident in Question 9, the patterns of excise tax increases over the years
show that they are often done so in an ad-hoc manner. This is seen in the fact
that tax increaseshave wide variations across years and in the same year across
products, and that there is no discernible pattern in the inconsistent variations
across time and products. As such, it is our view that the government’s ad hoc
revenue interests and other vested interests play a larger role in determining
excise tax rates in Sri Lanka.

6. WHAT TAXES DECIDE THE PRICE OF AN ALCOHOLIC

BEVERAGE?

The price of a locally produced alcoholic beverage is mainly affected by the

following taxes:

◆ Excise Duty
◆ Value Added Tax (VAT)

The price of a bottle of imported liquor is affected by the following taxes:

◆ Customs Duty
◆ Value Added Tax (VAT)
◆ Ports and Airports Development Levy (PAL)
◆ Cess Duty

Further details on these taxes can be found in Questions 1, 2 and 3.

25
 DESK RESEARCH ON ALCOHOL TAXATION IN SRI LANKA

7. WHAT IS THE TAXATION SYSTEM FOR LOCAL LIQUOR

AND FOREIGN LIQUOR?

a) Locally Produced Liquor

Locally produced liquor is solely subjected to an excise duty which is imposed

by the Ministry of Finance and Department of Fiscal Policy and collected by the
Department of Excise.

b) Imported Liquor

Imported liquor is subjected to a customs duty, which is imposed and collected

by Sri Lanka Customs.

Further details on these taxes can be found in Question 1.

8. WHAT IS THE FORMULA/ MECHANISM/ METHODOLOGY

USED FOR DECIDING THE TAX RATE?

◆ The methodology used when deciding the amount of tax applicable to an

alcoholic beverage has been explained in Question 1. In short, it is based
on the absolute litre system or bulk litre system, depending on the type of
alcoholicbeverage. In addition, the government decides on different tax rates
for arrack, country made foreign liquor, wine, sake, beer and bottled toddy.

◆ At present, there is no specific formula that is followed by the Ministry

of Finance when deciding the amount of tax to be imposed on different
alcoholic beverages.

◆ In the 2019 budget speech, it was proposed that excise duty on liquor will
be decided based on an indexation system, capturing both annual inflation
and income growth (GDP changes).28 However, as of 2022, there has been
no evidence that this system has been implemented when deciding the
amount of tax.

28
2Budget Speech 2019, Ministry of Finance, Sri Lanka. Available at
[Link] [Last
accessed 12 February 2022]

26
DESK RESEARCH ON ALCOHOL TAXATION IN SRI LANKA

9. TAX INCREASES IN THE LAST THREE YEARS

Table 14 below shows the tax rates from 2010-2021 by type of locally produced
alcoholic beverage. It shows that, over the last 11 years, the government has
implemented numerous tax increases on almost all alcoholic beverages. However,
there were a few exceptions to this in both 2015 and 2021.

◆ The tax on a bulk litre of malt liquor (beer) below 5% was reduced from
LKR 190 in March 2015 to LKR 160 in November 2015 and increased to
LKR 190 again in December 2015. Insights from interviews conducted
suggest that this reduction in November 2015 was done in the hopes
of encouraging soft liquor consumption. However, this was to no avail,
as the rates increased a month later. The tax on bottled toddy (per
bulk litre) was also reduced from LKR 50 in 2017 to LKR 25 in 2021.

◆ In both the above cases of tax reductions, no official explanation was

provided by the government for the tax reductions. As evident in the
response to Question 8, changes in alcohol taxes over the years have
had no rationaleand do not happen systematically.

◆ The sharp jump in tax rates beginning in November 2017 can be

attributed to the change in the system of taxing alcoholic beverages,
from the proof/bulk litre system to the absolute litre system. This was
the case for arrack, country made foreign liquor, wine and beer (both
below and above 5%).

27
 Exhibit 14: Tax rates for locally produced alcohol beverages, 2010-2021

ease
Sake

Arrack
Ethyl Alcohol

Bottled Toddy

Special Arrack
Foreign Liquor

Date of Tax incr

% Tax Diffeence

% Tax Difference
% Tax Difference
% Tax Difference
% Tax Difference
% Tax Difference
% Tax Difference
% Tax Difference
% Tax Difference

Malt Liquor above 5%

Malt Liquor below 5%

Local Wine below 18%

per proof litre per bulk litre

24-
660 - - - 790 - - - 515 - 58 - 74 - - - - -
Jun-10
29-
710 8% - - 840 6% - - 565 10% 63 9% 79 7% - - - -
Oct-10
23-
813 15% - - 953 13% - - 668 18% 80 27% 96 22% - - - -
Nov 10
7-
863 6% - - 1003 5% - - 718 7% 80 0% 96 0% - - - -
Jan-11
25-
923 7% - - 1063 6% - - 778 8% 85 6% 101 5% - - - -
Oct-11
22-
- - - - - - 100 - - - - - - - - - - -
Nov-11
30-
983 7% - - 1123 6% - - 838 8% 90 6% 106 5% - - - -
Mar-12
6-
1043 6% - - 1183 5% - - 898 7% 100 11% 116 9% - - - -
Oct-12

28
DESK RESEARCH ON ALCOHOL TAXATION IN SRI LANKA
29
ease
Sake

Arrack
Ethyl Alcohol

Bottled Toddy

Special Arrack
Foreign Liquor

Date of Tax incr

% Tax Diffeence

% Tax Difference
% Tax Difference
% Tax Difference
% Tax Difference
% Tax Difference
% Tax Difference
% Tax Difference
% Tax Difference

Malt Liquor above 5%

Malt Liquor below 5%

Local Wine below 18%

31-
1110 6% - - 1250 6% - - - - 110 10% 130 12% - - - -
Jul-13
10-
1200 8% - - 1370 10% - - - - 120 9% 145 12% - - - -
Oct-14
25-
1485 24% - - 1700 24% - - 1200 25% 150 25% 185 28% - - - -
DESK RESEARCH ON ALCOHOL TAXATION IN SRI LANKA

Oct-14
3-
1595 7% - - 1860 9% - - - - 190 27% 245 32% - - - -
Oct-15
21-
1850 16% - - 2030 9% - - - - 160 -16% 315 29% - - - -
Nov-15
5-
- - - - - - - - - - 190 19% 315 0% - - - -
Dec-15
1-
- - - - - - - - - - - - - - 30 - - -
Jan-16
1-
- - - - - - - - - - - - - - - - 10 -
Apr-16
 ease
Sake

Arrack
Ethyl Alcohol

Bottled Toddy

Special Arrack
Foreign Liquor

Date of Tax incr

% Tax Diffeence

% Tax Difference
% Tax Difference
% Tax Difference
% Tax Difference
% Tax Difference
% Tax Difference
% Tax Difference
% Tax Difference

Malt Liquor above 5%

Malt Liquor below 5%

Local Wine below 18%

1-
- - - - - - - - - - - - - - 50 67% - -
Jan-17
per per proof
per absolute litre per bulk litre
absolute litre litre
10-
3300 - - - 3300 - - - - - 2400 - 2400 - - - - -
Nov-17
5-
3550 8% 3300 - 3550 8% 600 - 2700 - 2700 13% 2700 13% - - - -
Mar-19
3-
4050 14% 3800 15% 4150 17% 900 50% 3200 19% 3200 19% 3200 19% - - - -
Dec-19
7-
- - - - - - - - - - - - - - 25 - - -
Jan-21

Source: Various gazettes, Department of Excise – Sri Lanka - Performance Report 2018, 2019, Department of Excise – Sri Lanka

30
DESK RESEARCH ON ALCOHOL TAXATION IN SRI LANKA
DESK RESEARCH ON ALCOHOL TAXATION IN SRI LANKA

10. ARE THERE DIFFERENT TAXATION SYSTEMS FOR

C DIFFERENT ALCOHOLIC BEVERAGES?

All alcoholic beverages that are locally produced are subject to an excise duty at the
point of manufacture. Imported liquor, on the other hand, is subject to a customs
duty. However, the rate of excise duty and customs duty differs depending on
the alcoholic beverage concerned. The taxation system for different alcoholic
beverages is detailed in Question 1 and Question 9.

11. HAVE THERE BEEN ANY TAX REDUCTIONS FOR

ALCOHOLIC BEVERAGES IN THE PAST? IF SO,
WHAT MADE THE GOVERNMENT GIVE SUCH TAX
REDUCTIONS?

As per Exhibit 14 above, no significant reduction to alcohol tax rates was made
by the government. The only notable tax reduction that took place was for malt
liquor (beer) below 5% in 2015, during the budget speech for the year 2016. During
the interviews conducted for this report, it was mentioned that this reduction
was done in the hopes of encouraging consumers to shift to soft liquor varieties
for health reasons. However, by the third reading of the budget, this decision
was reversed to its previous rate because the then President, Hon. Maithripala
Sirisena had launched a separate campaign, “Mathata Thitha” to discourage the
consumption of all types of alcohol among the public.

A review of the literature revealed that some explanations have been given for
why duties have been increased, although these do not cover all increases.

◆ In 2020, an upward revision in the rate of excise duty was implemented

to accommodate the VAT reduction and NBT removal in the same
year29.
◆ In 1994, a tax reduction was given for beer products to encourage
consumers to shift consumption from hard liquor to soft liquor for
health concerns. However, this outcome did not take effect as regular
consumers stood firm in their preferences (arrack/illicit liquor etc.).30

29
Annual Report 2020, Ministry of Finance, p. 72

30
Siri Hettige, and Dharmadasa Paranagama, ‘Gender, Alcohol and Culture in Sri Lanka’, Alcohol,
Gender and Drinking Problems (2005), p. 168, available at
[Link]
=1&isAllowed=y [Last accessed 6th April 2022]

31
 DESK RESEARCH ON ALCOHOL TAXATION IN SRI LANKA

12. WHAT ARE THE COSTS ASSOCIATED WITH ALCOHOL

USAGE IN SRI LANKA?

Ranaweera S, Amarasinghe H, Chandraratne N, Thavorncharoensap M,

Ranasinghe T, Karunaratna S, et al. (2018) Economic costs of alcohol use in Sri
Lanka. PLoS ONE 13(6): e0198640. [Link]

The objective of this study was to estimate the economic costs of alcohol
consumption (in terms of selected alcohol- related disease conditions) in Sri
Lanka for the year 2015. Using a methodology specified by the World Health
Organization (prevalence-based cost of illness and gross costing approach), this
study looked at direct economic costs (costs of inpatient and outpatient care
borne by the state and out-of-pocket expenses borne by patients themselves)
of diseases attributed to alcohol use and indirect economic costs (lost earnings
due to being a patient or loss of income because of death) related to the use of
alcohol incurred in Sri Lanka.

The findings showed that the total economic cost of alcohol use in Sri Lanka
was USD 885.85 million (1.07% of GDP) in 2015. Of this, USD 388.35 million (44%)
consisted of direct costs, while USD 497.49 (66%) consisted of indirect costs. The
loss of productivity due to premature mortality, USD 388.86 million, was the
highest cost category, accounting for 44% of the overall cost. The next highest
cost was the inpatient care cost of USD 293.75 million, which was one third of the
total cost. In comparison, the excise revenue generated by the government in the
same year was only USD 779.73 million in 2015. At a micro-level, the economic
costs of alcohol on the average Sri Lankan household (although not quantified)
were also highlighted. These included low wages (because of missed work and
reduced efficiency on the job), lost employment opportunities, increased medical
expenses for illness and accidents, fines fordrink-related offences, and decreased
eligibility for loans etc. These exert much pressure on the national economy.
The study also listed out many other costs associated with the consumption of
alcohol on everyday Sri Lankans. These included injuries and deaths associated
with road traffic accidents; harm from interpersonal violence, aggression and
crime; harm to families, including psychological distress, pain and suffering from
domestic violence, marital separation and divorce, child and household neglect,
poverty; and harm to the developing fetus etc.

The study concludes that the government should aim to minimize such high
costs resulting from alcohol consumption in the country through effective
taxation that will reduce the affordability of alcohol, strengthen the enforcement
of existing restrictions on advertising and promotion, and enhance the capacity
of enforcement agencies to implement drink driving countermeasures and to
educate the public on the harms of alcohol consumption.

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DESK RESEARCH ON ALCOHOL TAXATION IN SRI LANKA

Baklien B, Samarasinghe D. (2005) Alcohol and poverty in Sri Lanka. FORUT.

[Link]
html
This study comprised both a qualitative inquiry and a quantitative survey to
ascertain the relationship between alcohol use and poverty, both in terms of
its impact on income, and in terms of social poverty. The areas chosen for the
study - urban over-crowded communities, rural communities in the wet and dry
zone of the country, an estate community and a community of the internally
displaced - were specified by the development agency that commissioned the
study, FORUT. The study also aimed to assess the role of alcohol in different social
settings within the regions chosen for the study.

Findings from the qualitative research component showed that alcohol

consumption does in fact contribute to costs such as individual poverty and acts
as a hindrance to the economic development of the people in the areas studied.
Higher alcohol consumption was associated with a higher likelihood of violence
and its acceptance around those who consumed alcohol. The quantitative
component too reiterated this finding. In fact, 7% of male respondents claimed
their expenditure on consuming alcohol exceeded their income. In addition, 80%
of the respondents claimed that when individuals become drunk, there is more
likelihood of them engaging in fights and clashes etc., disturbing communities
and those around them. The qualitative component of the study also highlighted
the social pressures associated with the consumption of alcohol.

Despite the costly nature of alcoholic beverages, it was revealed that, even
among poorer communities, there is a social expectation to serve alcohol at
weddings and contribute alcohol to drinking parties. These events happen on a
regular basis in such settings. Not adhering to these expectations and norms of
these events carries with it a risk of social sanctions by the rest of the community.
The study revealed how such social expectations interfere with the social and
economic advancement of the members of such communities and contribute
to poverty.

Alcohol and Drug Information Centre (ADIC). (2020) Survey on alcohol and
tobacco consumption during the COVID-19 pandemic in Sri Lanka. http://
[Link]/wp-content/uploads/2020/08/COVID-19-and-alcohol-and-
[Link]

This study, conducted by ADIC Sri Lanka, comprised a survey to evaluate the
changes in both alcohol and tobacco consumption among Sri Lankans during
COVID-19 in 2020. The survey was conducted between the 1st and 10th of May
2020. The study revealed that 80% of the respondents had reduced their
consumption of alcohol during the lockdown period. A major reason for this, as
54% of respondents stated, was the closure of outlets that sold alcohol during the
lockdown period.

In addition, 49% of the wives of male respondents who had reduced their
consumption of alcohol reported a decline in family issues and problems, and 40%
of them also claimed they had seen an increase in their family savings because of
the decrease in expenditure on alcohol caused by reduced alcohol consumption.
As the study concludes, these findings highlight the costs of alcohol use by
revealing the benefits of being free of or reducing the use of alcohol.

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 DESK RESEARCH ON ALCOHOL TAXATION IN SRI LANKA

13. WHAT WOULD A TAX INCREASE MEAN FOR THE

COUNTRY? WHAT WOULD THE BENEFITS BE?
A. WHEN WILL TAX REFORM START BEARING FRUIT?

B. HOW MANY LIVES WOULD BE SAVED?

C. HOW MANY DALYS SAVED?

Dayaratne, G.D., (2013) State of the Sri Lankan Alcohol Industry and Analysis of
Governing Policies. Institute of Policy Studies of Sri Lanka at [Link]
wp-content/uploads/2017/01/[Link]

The aim of this study was to provide policy makers with a balanced policy option
for alcohol that could be implemented, monitored and enforced effectively. The
study does so by taking into consideration the views and opinions of various
stakeholders from the industry, whilst maintaining the goal of enhancing
government revenue from legal alcohol.

A large component of this study examined the Government’s policies on alcohol

taxation and its consequences on the alcohol usage and habits of the adult
population that consume alcohol in the country. With regard to the practices
of alcohol taxation in the country the study states that, in the past, alcohol
taxation policies have not been effective in altering the drinking culture of
alcohol consumers. In fact, blanket tax increases that have taken place previously
have only threatened to increase alcohol related harm as consumers began to
substitute legal forms of alcohol with illicit liquor (kasippu), which, because it is
manufactured illegally with no hygiene or other regulations and with very high
concentrations of alcohol, is harmful for consumption. This was especially the
case among poorer populations in the country.

The study also notes that tax increases have benefits because they have the
potential to alter harmful drinking habits of adult consumers. Higher tax increases
on hard liquor, relative to tax increases on soft liquor, can encourage consumers
to switch from hard liquor varieties to soft liquor varieties, thereby indirectly
improving the health of these consumers and reducing harm to those around
them. However, such changes in behavior as a result of tax increases can only
be achieved if measures to detect illicit alcohol production can be strengthened,
and corruption among stakeholders within the industry and political loopholes
within the industry can be adequately addressed. In addition, ensuring public
support and political commitment to develop and apply evidence-based policies
and recommendations that are sensitive to the cultural and economic diversity
of consumers can also help to achieve intended expectations of alcohol tax
increases. Based on this study, a tax reform that not only aims to increase tax
rates, but also addresses other concerns and weaknesses within the industry
that could hinder the effectiveness of such tax increases (highlighted above), can
successfully bring about tangible benefits to the country in the medium term or
in the long term.

34
DESK RESEARCH ON ALCOHOL TAXATION IN SRI LANKA

World Health Organization. (2017) Alcohol Policy in the WHO South-

East Asia Region: A Report at [Link]
le/10665/259828/[Link]?sequence=1&isAllowed=y

This report is an assessment of the progress made in alcohol policy development

in WHO South-East Asia region member states since these countries endorsed
the Global Strategy to Reduce the Harmful Use of Alcohol in 2010. The study
aimed to help policy makers and program managers in each country identify
areas that require attention and to work towards the effective implementation
and enforcement of alcohol policies and legislations.

Section 1 of the report provides an overview of the alcohol consumption situation

in each of the WHO South-East Asia region countries and provides an overview
of the alcohol-related problems that such countries are facing. The report states
that the prevalence of total heavy episodic drinking in Sri Lanka was 0.4%. In
addition, the report also details the estimates of disability affected life-years
(DALYs) affected per 100,000 (age-standardised) people (of all ages) in Sri Lanka
by alcohol consumption induced problems in 2012. Although the report does not
draw a causal link between an increase in alcohol tax rates and DALYs that could
be saved, these figures suggest the number of DALYs that could be saved if any
policy or regulation - including a tax hike - is implemented to reduce or alter the
consumption of alcohol.

Exhibit 15: DALYs affected per 100,000 (age-standardised) people (for all ages) in Sri
Lanka by alcohol consumption induced problems in 2012

Alcohol use disorders 77

Poisoning 6

Liver Cirrhosis 112

Liver Cancer 21

Road Injuries 168

Interpersonal violence 91

In addition to this, the report also highlights details on community action and
several non-tax related government policies and approaches implemented to
reduce the harms of alcohol consumption in the country. For example, Sri Lanka
mandates that nutritional information of the beverage should be available on
the label of alcohol containers. It also mandates that the alcohol content (% of
ethanol by volume) is indicated on labels of alcohol containers.

‘The global burden of disease attributable to alcohol and drug use in 195 countries
and territories, 1990–2016: a systematic analysis for the Global Burden of Disease
Study 2016’, Lancet Psychiatry, November 2018 at [Link]
action/showPdf?pii=S2215-0366%2818%2930337-7

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 DESK RESEARCH ON ALCOHOL TAXATION IN SRI LANKA

The objective of this study was to use data from the Global Burden of Diseases,
Injuries, and Risk Factors Study (GBD) 2016 to calculate global and regional
estimates of the prevalence of alcohol, cocaine, opioid dependence, and
other types of dependencies, as well as to estimate the global disease burden
attributable to alcohol and drug use between 1990 and 2016 for 195 countries. The
study is considered the first of its kind to estimate associations between alcohol
and drug attributable burden and sociodemographic development. Findings
reveal that there is much variation geographically with regard to the magnitude
and contribution of alcohol and drug use to disease burden.

The study provides estimates for Sri Lanka (Exhibit 16) in terms of DALYs, years
of life lost (YLLs), years of healthy lives lost (YLDs), and deaths attributable to
alcohol use in 2016. Although the study does not draw a causal link between an
increase in alcohol tax rates that can alter alcohol consumption, and DALYs and
lives that could be saved, these figures suggest there could be a positive impact
on the number of DALYs and lives that could be saved if any policy or regulation
– including a tax hike - is implemented to reduce the consumption of alcohol.
According to these estimates, an increase in tax rates could save 1164 DALYs per
100,00 people and can prevent the deaths of 36.2 lives per 100,00 people.

Exhibit 15: DALYs affected per 100,000 (age-standardised) people (for all ages) in Sri
Lanka by alcohol consumption induced problems in 2012

Attributable to Alcohol in 2016

Age Standardized Age Standardized Age Standardized Age Standardized
DALYs per 100,000 YLDs per 100,000 YLLs per 100,000 deaths per100,000
people (95% UI31) people (95% UI) people (95% UI) people (95%UI)

1164 192.6 971.5 36.2

The study also details the ways in which causes of alcohol and drug burden can
be prevented and treated. These include taxation, regulation of the availability
of alcohol, regulating marketing strategies that promote alcohol, reducing the
alcoholic strength in beverages, and implementing minimum prices on alcohol
etc. Interventions that can be taken to reduce alcohol consumption-related
injuries and deaths during travel, such as implementing blood alcohol limits,
alcohol testing of drivers, mandating seat belts and helmets etc., were also listed.

31
Uncertainty Intervals

36
37
ANNEX A

Current tariff rates imposed by SLC for imported liquor by HS Code (at the 6-digit level)

General
HS Code Description Unit Customs VAT PAL Cess
Duty
22.03 Beer made from malt
2203.00.10 Canned beer less than 350 ml Per litre 550/= 8% 10% -
2203.00.20 Canned beer 350 ml or more Per litre 550/= 8% 10% -
2203.00.90 Other Per litre 550/= 8% 10% -
22.04 Wine of fresh grapes, including fortified wines; grape must other than that of heading 20.09
DESK RESEARCH ON ALCOHOL TAXATION IN SRI LANKA

2204.10.00 Sparkling wine Per litre 440/= 8% 10% -

Other wine; grape must with fermentation prevented or
arrested by the addition of alcohol
2204.21.00 In containers holding 2 l or less Per litre 440/= 8% 10% -
2204.22.00 In containers holding more than 2 l but not more than 10 l Per litre 440/= 8% 10% -
2204.29.00 Other Per litre 440/= 8% 10% -
2204.30.00 Other grape must Per litre 440/= 8% 10% -
 General
HS Code Description Unit Customs VAT PAL Cess
Duty
22.05 Vermouth and other wine of fresh grapes flavoured with plants or aromatic substances
2205.10.00 In containers holding 2 l or less Per litre 440/= 8% 10% -
2205.90.00 Other Per litre 440/= 8% 10% -
Other fermented beverages (for example, cider, perry, mead, sake); mixtures of fermented beverages and mixtures of
22.06
fermented beverages and non-alcoholic beverages, not elsewhere specified or included.
2206.00.10 Non alcoholic beverages Per litre 440/= 8% 10% -
2206.00.90 Other 8% 10% -
2206.00.91 Palmyrah Toddy Per litre 440/= 8% 10% 50%
2206.00.99 Other Per litre 440/= 8% 10% 50%
Undenatured ethyl alcohol of an alcoholic strength by volume of less than 80% vol; spirits, liqueurs and other spirituous
22.08
beverages.
2208.20.00 Spirits obtained by distilling grape wine or grape marc Per litre 2750/= 8% 10% 70%
2208.30.00 Whiskies Per litre 2750/= 8% 10% 70%
Rum and other spirits obtained by distilling fermented
2208.40
sugarcane products
2208.40.10 Rum Per litre 2750/= 8% 10% 70%
2208.40.90 Other Per litre 2750/= 8% 10% 70%
2208.50.00 Gin and Geneva Per litre 2750/= 8% 10% 70%
2208.60.00 Vodka Per litre 2750/= 8% 10% 70%
2208.70.00 Liqeurs and cordials Per litre 2750/= 8% 10% 70%
2208.90 Other
2208.90.10 Coconut based arrack Per litre 2750/= 8% 10% 70%
2208.90.20 Palmyrah based arrack Per litre 2750/= 8% 10% 70%

38
DESK RESEARCH ON ALCOHOL TAXATION IN SRI LANKA

2208.90.90 Other Per litre 2750/= 8% 10% 70%