Maithri Yugayak Thirasara Sanwardanayak
Nov 15, 2017

Sri Lankan beer producers to regain market share with tax changes

Sri Lanka's beer industry will regain market share from hard liquor following a more favourable tax regime for the segment announced in the Sri Lankan government's budget on 9 November, Fitch Ratings predicted.

However the international rating agency expects that the ratings on Distilleries Company of Sri Lanka PLC), the largest hard liquor manufacturer, and Lion Brewery (Ceylon) PLC, the leading beer maker, will remain steady.

The Sri Lankan government's 2018 budget reduced excise taxes on strong beer by 33% and raised that on hard liquor by 2%, effective immediately.

The budget also introduced a Nation Building tax of 2% on all alcoholic beverage sales, which will take effect from April 2018. With the latest tax revisions and barring further changes, we expect beer's market share of total reported alcohol consumption in Sri Lanka, as calculated by Fitch, to increase to around 24%-25% in the medium term, posting an average volume growth of 22% over 2017-2019.

Fitch expects hard liquor sales volumes to contract 2% over this period, reversing some of the market share gains it made in the last few years. Hard liquor's share rose to 84% in 2016 from 71% in 2014, after a series of tax increases for beer. The market share for beer fell to 14% from 27% over the same period.

Lion accounts for over 80% of Sri Lanka's beer sales, and the lower excise tax has led to a 23% drop in the price of its main strong beer product.

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