- Raw material, packaging material costs skyrocket, industry claims
- Contemplating whether to increase prices now or after Budget
- Demand for alcohol outstrips supply
By Tanya Shan
Local alcohol manufacturers are gearing up to increase prices once again, following the rise in raw material and packaging material prices led by record-high inflation, The Sunday Morning Business learns.
Well-placed senior industry sources from several alcohol manufacturing companies told The Sunday Morning Business that they were contemplating whether to announce price increases now or wait for the interim Budget to be presented.
Sources stated that they may wait for the interim Budget to be presented as they expected taxes on alcohol products to be increased.
“Raw material and packaging materials have become expensive with soaring inflation. Even at high prices, sourcing these materials is difficult due to the shortage of items in the market, so we will increase the prices of alcohol products. Our dilemma is whether to increase prices before and after the Budget announcement or increase after the announcement only, since we expect taxes imposed on our businesses to go up,” sources stated.
According to industry sources, the Excise Department is also concerned about the taxes that will be imposed on alcohol manufacturers and believes that a massive tax hike will be announced on their products.
Prime Minister Ranil Wickremesinghe said on Tuesday (24) that he would present an interim Budget within six weeks, slashing infrastructure projects to re-route funds into a two-year relief programme for the crisis-hit island nation.
Local and international economists, rating agencies, and international financial institutions such as the International Monetary Fund (IMF) are advising Sri Lanka to increase its tax revenue by imposing new taxes or re-introducing the taxes that were slashed by President Gotabaya Rajapaksa in November 2019.
According to the latest available statistics, excise revenue from hard liquor declined by 6% to Rs. 51.3 billion in the first eight months of 2020, compared to Rs. 54.6 billion in the same period in 2019. In the same vein, revenue collection from malt liquor dropped by 16.2% to Rs. 18.1 billion in the first eight months of 2020, compared to Rs. 21.6 billion in the same period in 2019.
Moreover, the ban on the importation of ethanol in January 2020 by then President Maithripala Sirisena caused serious concerns for the local liquor industry. The ban took the industry by surprise as it was not pre-informed, nor was a grace period provided to comply with the ban. This action had reportedly been taken since ethanol is widely produced within the country.
However, since then, manufacturers have been facing issues in terms of the quality of the locally-available ethanol and the insufficient supply. The industry attributes the aforementioned shortfall in revenue mainly to this move.
Industry sources further noted that even the Treasury was now regretting the ethanol ban, which had resulted in less supply amid high demand.
On 15 March, prices of liquor were increased with immediate effect. The price of a 750 ml bottle of liquor issued under the extra special label was increased by Rs. 100. The price of a 375 ml bottle of liquor was increased by Rs. 60 and a 180 ml bottle of liquor by Rs. 30, while the price of all locally-produced beers was increased by Rs. 10.
