Plugging Leakages

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2017-11-18

'Prohibition' was the USA's failed attempt to ban liquor.

It ran for a period of 13 years from 1920 to 1933 before its abolition.

In the interim it spawned an illicit liquor industry leading to gangsterism, corruption and bloodshed as different groups tried to gain control over this multimillion US dollar illicit industry.

It was not only illicit, it also proved to be a health hazard as there were no minimal quality standards that this illegal brew had to observe in its manufacturing process. Something which is illicit cannot be regulated nor taxed.

Then came the 'Great Depression' of 1929 led by the collapse of prices which reverberations were, even, felt in tiny Sri Lanka, where, before the Depression a coconut producer could get Rs 75 for 1,000 nuts, but in the immediate aftermath of the Depression, prices fell to Rs 5 per 1,000 nuts, driving several coconut producers to penury.

In 1932 the US elected a new President, Franklin Delano Roosevelt.

One of the first steps that Roosevelt took, no sooner he was elected to power, was to abolish the pernicious and obnoxious Prohibition Act in 1933, the only Act in the USA's 241-year-old history, to have been rescinded.

Not to be outdone, Sri Lanka too, 82 years later in 2015, also repealed an equally obnoxious and repulsive Act for the first time in the history of the 2nd Republican Constitution of 1978, by invalidating the 18th Amendment to the Constitution of President Mahinda Rajapaksa passed in 2010, that gave virtually unfettered powers to the President, by enacting the 19th Amendment.

An almost similar action, as akin to the passing of the 21st Amendment to the US Constitution in 1933 which outlawed the pernicious 18th Amendment of 1919 which made the alcohol industry illegal in the USA took place on 9 November 2017 in tiny Sri Lanka.

This was when Finance Minister Mangala Samaraweera, Roosevelt like, presenting his maiden budget in Parliament, slashed strong beer taxes by 33 per cent with immediate effect, thereby dampening to a great extent the negative high tax regime brought about by his predecessor and former Cabinet colleague Ravi Karunanayake (MP), who jacked up beer taxes by 70 per cent only two years ago in 2015.

The effects of Karunanayake's high tax regime on liquors brought about a fall in Government of Sri Lanka (GoSL) revenue. For instance official data showed that revenue collected from excise duty on liquor fell by 5.9 per cent year on year to Rs 73.6 billion in the first eight months of the year, compared to Rs 78.3 billion in the commensurate period last year, a drop of Rs 4.7 billion.

This was despite the fact that alcohol less than five per cent, 'bulk' and wine and Sake liquor (generally, rice based beer as opposed to beer made from imported barley) grew by 26 and 23 per cent respectively, while hard liquor production declined by 11 per cent, the Finance Ministry said.

A study done by the Institute of Policy Studies (IPS), a GoSL funded think tank, in 2013, said that about 65 per cent of the total alcohol market in the country is said to be illicit. This sector doesn't pay any taxes to the State.

IPS warned that high taxation on legitimate liquor may lead to the increase in consumption of illicit liquor leading also to higher health risks as the illicit liquor industry is not regulated.

Additionally, IPS said that there are large scale illicit distilleries operating under political patronage which do not pay taxes. It said that 'Thotalanga' is the central place where the illicit liquor industry thrives, living off some over 10,000 Colombo Port's labourers.

Kasippu traders provide jobs in the trade and spend freely on the poorer community who lives there. Seventy per cent of the 10 illicit alcohol traders are women, the Study said.

It's reported that some illicit liquor manufacturers are importing high strength spirits on the pretext that it's required by the paint industry, thereby depriving the State of alcohol tax revenue, said IPS.

Therefore, the reduction in taxes of strong beer to an extent will help to plug this revenue leak.

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