SL’s Sin Industry and Sin Tax

Mathata Thitha or End to Alcoholism: Just a slogan devoid of commitment or action?

By W. A. Wijewardena

Source: Daily FT

Kautilya: If you cannot beat Satan, make friends with him

Kautilya, the 4th century BC Indian economist and statesman, did not approve of people taking alcohol. In ‘Chanakya Neethi’ or Ethics of Chanakya, he branded ‘a wine-drinker, equating him to a meat-eater or a fool, as an animal in the form of a human’. That is because by consuming alcohol, they behave like animals without the ability to reason or judge. But he knew the practical difficulty of keeping people away from alcohol, which is an addiction.

Hence, in ‘The Arthashastra’, a treatise on economics, he advised the king to regulate the alcohol industry strictly by making it a state monopoly. His reasoning was that once it was in king’s hands, quality, availability and variety could be assured by the king while earning good revenue to his treasury. However, Kautilya wanted people to drink in style and not be a public menace.
Therefore, in his type of social system, drinking in public places was prohibited. It was permitted only in specially set-up ‘drinking halls’ which he said should have ‘many rooms with beds and seats in separate places’. He also recommended that ‘the drinking rooms shall be made pleasant in all seasons by providing them with perfumes, flowers and water’. People were not permitted to buy and take alcohol home unless they were ‘of good character’ and even then, they could buy only ‘small quantities of alcohol’.

Kautilya’s fan and follower in 12th century BC Lanka, King Parakramabahu the Great, is reported to have followed his advice to the letter: Historian Senarat Paranawitana, quoting the Egyptian Geographer Idris, says that during King Parakramabahu’s time, shiploads of alcohol had been brought to Lanka from a place called Arak and the king had bought all the alcohol, making it a king’s monopoly and sold it back at prices fixed by him.

Dry-country policies won’t make people ‘dry-minded’   

Many governments today have gone to the other extreme of prohibiting alcohol altogether. For instance, the Maldives has made the country a ‘dry-land’ for Maldivians but they have not been exactly ‘dry-people’ since the two bottles of alcohol issued per month to executive foreign workers by the government have in most cases ends up in their homes through a well organised black market for the product.

The only outcome of making the Maldives dry has been to increase the cost of alcohol to Maldivians, enabling foreign workers to make some extra money and deny the full profits from the alcohol trade to the Maldivian government. Had they followed Kautilya, they could have put in place a compromising public policy that would have satisfied all.

Sri Lanka’s Mathata Thitha or End to Alcoholism policy

Sri Lanka too has gone into an ‘anti-alcohol public policy’ under the catchy slogan ‘Mathata Thitha’ or ‘End to Alcoholism’ after the incumbent President Mahinda Rajapaksa was elected to presidency in 2005. It was, in fact, a promise he had made in the 2005 Presidential Election Manifesto, popularly known as Mahinda Chinthana.

After being sworn in as the President of the republic, to his credit, he got the Parliament to approve in 2006 the National Authority on Tobacco and Alcohol Act and went on to set up an authority under the same name, known in its abbreviation as NATA, to implement the provisions of the Act.

NATA’s website (www.nata.gov.lk), even after seven years of its establishment, confesses that “however, strong enforcement and overall implementation of the Act has not yet been fully achieved. Institutional and functional capacity of NATA and other relevant national agencies need to be strengthened so that the Act may be applied to reducing the disease burden caused by tobacco use” (accessed on 29.1.2014).

It also appears that NATA is more occupied with tobacco and less with alcohol, viewing tobacco as the public enemy number one. NATA is both an advisory and enforcement agency and it is up to the Government to implement its recommendations.

Two achievements by NATA in discouraging the use of alcohol (and also tobacco in the form of cigarettes) among youngsters was the prohibition of the sale of tobacco or alcohol to persons below the age of 21 and in advertising of alcohol or tobacco in media followed by censoring all scenes depicting alcoholic consumption from visual electronic media. But creative advertising firms have circumvented these prohibitions by designing advertisements on alcohol without directly referring to alcohol but which allow the public to get the full message without any distortion.

IPS study on alcohol industry

In this background, the Institute of Policy Studies or IPS came up with a study on ‘The State of Sri Lankan Alcohol Industry and Analysis of Governing Policies’, done by its researcher G.D. Dayaratne and published in its Research Studies Working Paper Series in December 2013.

According to Dayaratne, alcohol policies have changed all over the world in the last century, promoting adults drinking alcohol in moderation but the policy in Sri Lanka “has been less pragmatic in controlling consumption and more directed towards the denial of access to a good section of the population” (p1).

A good alcohol policy should be formulated, argues Dayaratne, taking into account a wide variety of key factors. They include social, religious, cultural, economic, political and public health dimensions, thus providing a holistic approach to alcohol policy.

Duplicitous policy on alcohol by the Government

Sri Lanka’s policy on alcohol has been, according to Dayaratne, duplicitous. On one side, it implements policies like ‘Mathata Thitha’, discouraging the consumption of alcohol by its people. Surely, it is a worthwhile social policy program since the excessive consumption of alcohol leads to many social problems such as disintegration of families, failure to bring up children as citizens of worth and individuals failing to attain the best in their careers, professions or enterprises.

On the other hand, it increasingly relies on the legally licensed alcohol industry to generate revenue for the Government’s budget by imposing an ever-rising excise duty on it known as a ‘sin tax’ and accordingly treating it as a ‘sin industry’.
The alcohol industry has been generating, in the recent past, on average about Rs. 60 billion to Government coffers which is close to 1% of the country’s GDP. This is not a sum which any revenue-hungry government can ignore. The authorities, according to Dayaratne, have been decrying the alcohol industry in public but “alcohol has been consumed at the highest levels and is being served at official functions” (p2).

Branding alcohol as a sin industry is just on paper

Producing ‘arrack’, the highest alcohol content spirit produced in Sri Lanka, was virtually a government monopoly until 1992, the year in which the major alcohol producer, Distilleries Corporation of Sri Lanka or DCSL was privatised. There were seven other private bottlers who had an insignificant share in the market at that time.

However, despite the government treating it as a sin industry all throughout and the present Government’s Mathata Thitha policy, the number of bottlers has increased since then to 20, according to the Administration Report of the Commissioner General of Excise for 2011.

Though promoting competition is a virtue for any industry, the licensing of new bottlers does not go well with the declared policy of the Government to curtail the consumption of alcohol by the people. In fact, it makes available arrack at more competitive prices to consumers.

A good example is the case of the ‘Arrack Buddy’ containing 180 ml. DCSL has priced the little and handy bottle at Rs. 255 while some private new bottlers have priced it at Rs. 180, making it affordable to many low income consumers. Thus, instead of alcohol consumption declining, it has in fact increased, defeating the much publicised objectives of the Mathata Thitha program.

Industry revenue, profits have soared despite Mathata Thitha policy

Despite the higher price tags attached to DCSL’s products, its sales and revenues have increased phenomenally after the end of the war, it was revealed by Dayaratne. For instance, in 2007, its revenue was Rs. 23 billion with a net profit of Rs. 1.8 billion. DCSL’s revenue increased to Rs. 29 billion by 2009, generating a net profit of Rs. 2.6 billion. In 2011, its revenue shot up to Rs. 39 billion and net profits soared to Rs. 7.7 billion.

Drawing on IPS’s alcohol database, Dayaratne has reported that the total production of arrack in Sri Lanka too has increased phenomenally in the post-war period. In 2009, the total production was 55 million litres. In 2011, it shot up to 87 million litres.

During this period, the annual production of toddy, one of the major source inputs for producing arrack, has remained stagnant at 5.5 million litres, and the arrack industry in Sri Lanka has depended more on other source inputs such as molasses, a by-product of sugar industry, and ethanol, an imported pure spirit that can be blended to produce arrack.

At the same time, the production of a variety of soft-liquor – beer – has remained at around 49 million litres per annum during this period. Accordingly, there has been a marked shift by Sri Lankan consumers from soft-liquors to hard-liquors during the post-war period, despite the Government’s declared war against alcohol consumption by Sri Lankans.

Sri Lanka is No. 4 in world’s per-person booze consumption  

Taking into account both domestic production and imported spirits, with the exception of illicit liquors, the Commissioner General of Excise has estimated the total alcohol consumption in the country. Accordingly, as reported by Dayaratne, the total consumption consisting of arrack, imported liquors and beer was 128 million litres in 2005 – the year in which the Mathata Thitha was introduced.
By 2010, it had increased to 148 million litres. Accordingly, per capita consumption converted into proof litres also increased from 6.41 litres to 7.41 litres between 2005 and 2010. Since the more realistic indicator is the per capita consumption by the population above the legal age of 18, the per capita consumption by that age category was 9.79 litres in 2010 and 11.2 litres in 2011.
The more worrisome development is the unrecorded consumption of liquor by people and according to the estimates of the Commissioner General of Excise, it was 9.38 litres per person in 2010, making that a total per capita consumption of over 16 litres in that year.

Thus, Dayaratne concludes: “As a result, the country now ranks among the top boozing nations in the world when both recorded and unrecorded liquor consumptions are taken into account, below only the Czech Republic, France and Russia” (p16). This worrisome development has happened despite the Government’s avowed goal of creating an alcohol-free, righteous society in the country and taking many steps to discourage the consumption of alcohol such as banning advertisements on alcohol and censoring scenes of alcohol consuming people in the electronic media.

Illicit liquor dens have outnumbered legally licensed wine shops

What this means is that the public policy on alcohol in Sri Lanka has failed to deliver its intended results. The matter is more critical, since, as reported by Dayaratne, there are some 200,000 estimated illicit brew retailers in the country compared to the 3,332 licensed wine shops.

Any intensification of raiding the illicit liquor dens will not deter them since, as Dayaratne has noted, they are backed by the elected ruling class (p17) and the prices charged by them, though their products are of inferior quality, are very much lower than the prices charged by the legal liquor industry.

One reason for the wide price difference is the continuous increase in the excise duty on liquor by the Government as a way to increase its revenue. Thus, Dayaratne has argued: “Heavy taxes imposed on hard liquor have created a State-induced incentive to smuggle or produce tax-unpaid products. As a result, illegal alcohol production is on the rise in Sri Lanka, made with ‘artificial toddy’ and spirits imported under the guise of making paints and baby cologne according to industry sources” (p17).

Paint and cologne industries as façade to smuggle ethanol
The story does not end there. According to Dayaratne, illegal alcohol is brewed by using the toddy rejected by the legal alcohol industry and it has become a major health hazard to consumers. He has further reported that “smuggled imported spirits are being used to produce imitated hard liquor. The paint industry and the baby cologne industry have increasingly become a façade for the importation of spirits in order to pass through Customs, while also becoming a front for the illegal manufacture and the sale of liquor” (p17).

Issue of new licenses to run wine shops

Thus, the available evidence indicates that the goal of the Government under its Mathata Thitha program, to curtail alcohol consumption in the country gradually and eliminate it altogether in the end, has not been realised.

On the contrary, alcohol consumption has shot up dramatically in the period during which the program has been in operation. Dayaratne has attributed this to the ambiguous policies of the Government. He says: “The Government-initiated Mathata Thitha introduced in 2005 was flagrantly violated by the same source by issuing more licences to open up liquor sales outlets (mainly as political favours)” (p33).

According to the Administration Report of the Commissioner General of Excise for 2011, during 2005-11, a total of 377 new licences were issued to open up alcohol retail outlets. The registration of more bottlers for manufacturing hard liquor and the inaction of authorities to charge importers of spirits in violation of Customs regulations are other misdoings, according to Dayaratne, that have undermined the Mathata Thitha program. Hence, Mathata Thitha needs to be upgraded from a mere slogan to concrete policy action which should be followed by the Government consistently and devotedly.

The IPS study under reference provides valuable information on why Sri Lanka’s public policy on the alcohol industry has failed. It is a must-read for policy authorities as well as civil society leaders.
(W.A Wijewardena, a former Deputy Governor of the Central Bank, can be reached at waw1949@gmail.com )

Advertisements

One thought on “SL’s Sin Industry and Sin Tax

  1. Sri Lankan Public Alcohol policy Sucks to hell, the stupid Police men take the law in to their hands, even you cannot walk on a sideway drunk alone at night, a jeep might come and take him to the police station, in a mid night a bunch of friends cannot have a smoke even a bit away from side road,
    If the police see it.. they come and show off merci,
    For the people who decently drink and want to have some fun without harming anyone, I am sorry guys its a shame to born in this country with the Sri Lanka Police (dogs) meanwhile the children of ministers drunk an drive at night after dancing in night clubs while police salutes them on the road !

Comments are closed.