Sri Lanka Raises Alcohol Tax (Twice) to Reduce Alcohol Costs, Increase Government Revenue

Alcohol tax increase in January 2023

2023 so far is a year filled with incremental alcohol policy improvements for Sri Lanka. Alcohol harm can be expected to decline in the country as the Sri Lankan government is taking active steps to increase taxation on harmful products, such as alcohol. This reduces sales and consumption and thus harm and costs. It also raises state revenue.

The government took the first step earlier this year by raising the tax imposed on cigarettes and alcohol by 20% in January.

State Minister of Finance, Ranjith Siyambalapitiya announced this meant:

75% of Sri Lanka’s alcohol price and
65%-75% of cigarette prices consisted of tax duties.

This is a healthy figure in the Sri Lankan context because a high share of the product price makes alcohol less affordable and thus leads to falling alcohol use and harm. According to the Minister, the government collected 249.6 billion rupees (687 million U.S. dollars) in excise duties in 2021. While the tax revenue strengthened the government budget for social security, it also discouraged the use of harmful products, such as tobacco and alcohol.

Taxes further increased in July 2023

State fiscal policy was further improved through alcohol and cigarette taxation in July. These increases are expected to provide for the budget deficit that Sri Lanka is experiencing.

The July tax increase, too, amounted to a 20% excise duty rise on alcohol and tobacco products. According to industry analysts, about half the current alcohol prices consist of excise, value added tax, and social security levies.

Low tax revenue due to inefficiency of Excise Department, not high taxes

Excise Department officials also presented arguments opposing the current alcohol policy solutions in the country. These were presented at a Parliamentary Committee convened to recover due taxes via the implementation of a sticker system in the country. The Department has earned only LKR 72.985 billion of the expected LKR 217 billion excise duties so far this year. Officials attribute this shortfall to the reduction of alcohol production due to increased taxes.

However, MP Mahindananda Aluthgamage further clarified the situation to the Committee. According to the honourable Member of Parliament, tax revenue from the Excise Department failed to increase for many years, despite previously low tax rates. The failure to meet revenue goals therefore cannot be attributed to high tax rates. Instead, the MP highlighted the necessity of collecting taxes directly from alcohol production companies to ensure that the government received the proper tax revenue. The Parliamentarian also suggested that alcohol retail licenses be revoked as penalty for failure to pay taxes.

The Committee also discussed further improvements that could increase the efficiency of the Department. One such suggestion put forward the idea to digitize the Excise Department to ensure that alcohol products did not bypass tax points in the country. The Committee also instructed the Department to rotate Department Officials attached to alcohol companies in order to reduce the risk of corruption.

Community calls to improve alcohol policy

Heart-driven community and civil society efforts are key in improving alcohol policy in Sri Lanka. Just last year, Movendi International reported on civil society organisations across the country coming together to campaign for these changes. The Alcohol and Drug Information Centre (ADIC) and its youth wing Youth Action Network (YAN) spearheaded the campaign to increase alcohol and tobacco taxes in the country.

The campaigns highlighted the importance of properly taxing harmful products and companies, taking inflation into account. Failure to do so meant that the prices of harmful products remained cheaper by comparison.

ADIC and YAN worked together to petition the government to increase taxes on these products.

ADIC and YAN Sri Lanka Campaign to Increase Alcohol, Tobacco Taxes

Sampath De Seram, Executive Director of ADIC, a heart-driven member organisation of Movendi International provided the following statement on the tax increases:

Sri Lanka is in dire need of an evidence-based, scientific taxation formula for harmful products. It is also important that the tax formula reflects and exceeds inflation levels in the country. This ensures that people don’t find health harmful products like alcohol and tobacco cheaper by comparison.

Industry players also try to profit off of tax price hikes through devious methods. For example, alcohol companies frequently tack on a price increase whenever taxes are amended to increase their profitability. These profits are then directed towards promotional campaigns to further drive their sales. Government should take note of such strategies whenever taxation is considered and implemented to ensure that control policies truly do protect the people against these products.”
Sampath De Seram, Executive Director, Alcohol and Drug Information Center, Sri Lanka

Raising alcohol taxes is the single most cost-effective alcohol policy solution

In more than 500 resource articles, Movendi International is keeping track of the impact and benefits of alcohol taxation. Raising alcohol excise taxes is the single most cost-effective and scientifically well-proven alcohol policy solution.

In early 2023, a new study identified 30 cost-effective interventions to achieve the Sustainable Development Goals (SDGs) in the fastest way possible. Among these interventions, alcohol policy and especially alcohol taxation have been ranked as the second and third most effective intersectoral policies.

Implementing these measures could prevent 150,000 deaths caused by alcohol in the next ten years. For every dollar spent, a country could get back $76 worth of good things happening in society, while alcohol taxation alone can generate benefits worth $53 for every dollar spent.

$53

Social benefits from alcohol taxation alone

An alcohol tax increase alone can generate large social benefits at $53 back on the dollar.

The potential of alcohol policy to help reach the SDGs

The peer-reviewed paper by researchers of the Copenhagen Consensus Center examined the benefit-cost analyses of various NCD interventions in low-income (LICs) and lower–middle-income (LMCs) countries. The analyzed 30 interventions recommended by the Disease Control Priorities Project, including six intersectoral policies, such as taxes and 24 clinical services. Using a previously published model to estimate intervention costs and benefits through 2030, researchers found that intersectoral policies often provided great value for money.

They conclude that there are several cost-beneficial opportunities to tackle NCDs in LICs and LMCs. In countries with very limited resources, the best-investment interventions could begin to address the major NCD risk factors, especially tobacco and alcohol, and build greater health system capacity, with benefits continuing to accrue beyond 2030.

150,000

Saving lives through alcohol policy

Improving alcohol policies could reduce overall alcohol use and avert 150,000 deaths until 2030.

Source

$76

Social benefits thanks to alcohol policy

Each dollar spent on alcohol policy development will deliver $76 of social benefits.

Source

Improving alcohol policies could reduce overall alcohol consumption and avert 150,000 deaths over the rest of the decade until 2030.

Each dollar spent on alcohol policy development will deliver $76 of social benefits.

An alcohol tax increase alone can generate large, if slightly lower, benefits at $53 back on the dollar.

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Alcohol policy as catalyst for development

Clearly alcohol policy in general and alcohol taxation in particular are very sound investments in reaching the SDGs.

Alcohol policy and alcohol taxation, as the single most cost-effective alcohol policy solution, help reduce population-level alcohol use and harm. The study shows they are very cost-beneficial interventions for promoting development.

The Copenhagen Consensus think tank has been working for years together with several Nobel laureates and more than a hundred leading economists to identify where each policy dollar can do the most good. Alcohol policy and alcohol taxation in particular are among the top options for governments.

The recent NCD Countdown Collaborators (early 2022) report, identified 30 cost effective interventions to reach the SDGs in the most effective and fastest manner. Sticking to these prioritized interventions has become a must to get back on track towards the Global Goals.

Alcohol Policy Best Buys

The potential of alcohol taxation for development

Low- and middle-income countries need interventions that use fewer resources while producing the largest effect – targeting the biggest obstacles to development.

According to several studies that have been reviewed, there is clear evidence for the effectiveness of increasing the prices of alcohol and implementing alcohol taxes. This is because it encourages people to consume less alcohol, resulting in fewer alcohol-related harms.

Intersectoral tobacco and alcohol taxes and regulations to discourage their use were generally very cost-beneficial, with benefit-cost ratios ranging from 53 (alcohol excise taxes in LICs) to 100 (tobacco excise taxes in LMCs).”
Best Investments for the SDGs

RESET Alcohol: New Initiative to Tackle Alcohol Harms Will Focus on Taxation

That is why the RESET Alcohol Initiative is so ground-breaking and important. It helps countries develop and implement public health-oriented, evidence-based alcohol excise tax increases to boost health and development.

RESET Alcohol is an initiative where Movendi International and ADIC in Sri Lanka are partners, together with Vital Strategies, the University of Chicago, Illinois, the World Health Organization, NCD Alliance, and GAPA. With a grant of $15 million, RESET is working in fifteen countries primarily in Latin America, Africa, and Asia, including Sri Lanka.

The alcohol tax increases in Sri Lanka in 2023 are a result of the work of partners in Sri Lanka under the RESET Alcohol partnership.

A landmark study from May 2023 underlined the potential of alcohol taxation and the other alcohol policy best buys that RESET Alcohol is promoting.

The study reviewed evidence put forth by a total of 36 studies published since January 2000. Through rigorous steps in extracting comparable data, the researchers provide a systematic quantification of those studies and estimate the impact of three major alcohol policy solutions on alcohol consumption levels.

The greatest reduction in alcohol consumption was seen following the introduction of pricing policies, particularly for the most affordable alcohol. The researchers found that following the introduction of pricing policies, alcohol consumption reduced the most among low-income groups.