According to recent studies, the age at which Sri Lankan individuals initiate liquor consumption which now stands at an average of 20 years is seen gradually coming down, a recent research report has pointed out. It states that out of the alcohol consumers, nearly 60% of them have initiated drinking alcohol with beer whilst 36.2% started with arrack.
“It was reported that around 2% has had illicit liquor to get introduced to alcohol whilst according to a research carried in 2011, 51% of the males above 40 years of age consume alcohol while it is only 37% for the males between the 15-24 years”, analysts at local brokerage firm, TKS Securities said releasing the 2013 Liquor Sector Review last week.
Analysing further, the report noted that according to 2011 data, almost one third of the demand for liquor within the country arises from Western Province which holds 25% of 4,065 liquor licenses in the country.
‘Currently per capita consumption of beer in the country stands at 6.3 liters whilst for licit hard liquor it is 10.5 liters. Colombo claims the highest share of liquor consumption (15%) through 768 licensed liquor premises by the end of 2011. However with swarming restaurants and hotels with the growth in tourism industry the aforementioned numbers would significantly grow in the coming years”, the report projected.
The report added that despite the strict legal and heavy taxes due to religious and cultural aspects in the country, the legitimate liquor industry had witnessed a compound annual growth rate of 20% since 2009.
With the peace dividend after 30 years, rapid improvement in quality of life, nightlife and domestic traveling was evident, through which the liquor industry has directly benefitted. The society which had been highly conservative couple of years ago is now adopting Western cultural aspects at a much faster pace. Thus, Alcohol consumption which was considered as an unacceptable behavior by the majority of the society has now inclined to see it as a form of socializing activity”, the report added.
However, the Government has been on a very aggressive approach in raising excise duties in the past three years where excise duty on arrack (consumed by the majority) was increased by around 15% in 2012. Excise tax on arrack has been raised by 17% on average per year since 2010. Beer also saw a 15-18% increase in taxes 2012. Furthermore, a liquor manufacturer is taxed at a corporate tax rate of 40% while the normal tax rate in the country is 28%.
There are 23 licensed liquor manufacturers in Sri Lanka as at of December 31, 2011. According to the Excise Department of Sri Lanka’s existing policies, there will not be any new licenses issued to manufacture liquor, which makes it nearly impossible for the new players to enter the market.
The recent ban on ethanol imports into the country from March 1, 2013, which has forced the local liquor producers to buy from state ethanol producers is likely to affect the margins in the industry, analysts said. As the latter would enjoy a monopoly, liquor manufacturers will have to purchase Ethanol at higher prices thus shrinking their margins, the report said.