Business

Liquor sticker from March despite industry opposition

By Madhusha Thavapalakumar

The foolproof sticker requirement for local liquor products that was conceptualised by the previous Government is likely to be implemented by the Excise Department of Sri Lanka from 1 March.
Industry sources told The Sunday Morning Business that the department is pushing for it to be implemented from 1 March onwards, despite strong concerns within the alcohol industry.
The implementation comes three months prior to the compulsory enactment date that had been mentioned in an Excise Notification issued on 1 November 2019 by MP Mangala Samaraweera, in his capacity as the Minister of Finance.
That Excise Notification made implementation compulsory from 1 June, although it is unclear whether the new Government is proceeding with this notification in its entirety, or with amendments.
A meeting was scheduled to be held on 31 January among liquor industry stakeholders, Excise Department officials, and the Ministry of Finance to discuss the matters and concerns pertaining to the implementation of the sticker. However, it has been postponed until further notice due to unknown reasons.

Industry concerns
Nevertheless, the industry is concerned over the foolproof sticker requirement as none of the issues which were hindering implementation all this time have been addressed.
According to the local liquor industry, this goes against an agreement reached on 13 August last year to move forward with the digital coding system instead of manual pasting.
The industry noted that the per-hour production capacity at its manufacturing facilities are much higher than the sticker applicators’ per-hour manual pasting capacity and requested the authorities to opt for a digital method.
However, the industry’s request was disregarded as the agreement signed by the Government with an Indian company to print stickers for manual implementation, still remains and is likely to be continued further.
Awarding of the tender for this project to the Indian company Madras Security Printers (MSP) is itself dubious as exclusively reported by The Sunday Morning Business on 6 October, 2019, under the headline “Crooked company keeps liquor deal”. The Sri Lankan Government had repeatedly chosen to continue working with this company, which was initially awarded the tender in 2016, without consulting stakeholders. The sample stickers from this company were observed by international engineers and they had noted that the quality of the samples was not suitable for use in high-speed machines.
Industry sources told us that there are numerous other practical issues in implementing the stickers manually as manual pasting would require a minimum of one year for preparation and commissioning and would still be inefficient compared to digital coding, while a digital coding system could be implemented within three to four months as the relevant machinery can be ordered.
Further, even if the commissioning was done successfully, it would still take over one-and-a-half months for the erection of new building parts and breaking of walls as a result of commissioning, and the removal of the existing machinery and transportation of new machinery would be difficult and not possible without breaking the walls of the building.
In addition to this, the industry was worried about the insufficient time provided to comply with the requirement and the additional costs involved in the printing of the new stickers, which amounted to Rs. 2 per can or bottle.
Excise Notification No. 6 of 2019 published in Gazette Extraordinary No. 2128/30 on 1 November 2019 notes that importers of liquor products have to adhere to the new sticker requirement prior to 20 September 2019, while a licensed manufacturer has to adhere to the requirement prior to 1 June 2020. According to the Excise Department, importers have already adhered to the requirement.

Original plan
As exclusively reported by The Sunday Morning Business on 25 August last year, owing to the threats of a closure of operations by local alcohol manufacturers, particularly the Distilleries Company of Sri Lanka PLC (DCSL) and Lion Brewery PLC – the two biggest hard liquor and beer manufacturers respectively – the Government was forced to postpone the implementation of the law which was initially scheduled to come into effect 22 August 2019 onwards.
Responding to these threats, in a meeting on 13 August last year, the Ministry of Finance and the Excise Department assured the industry that a digital solution would be provided as the manual pasting of stickers consumes more time and has high labour costs, as the Government was sympathetic towards these concerns at that point.
Due to the decision to shift to a digital solution, manufacturers were also assured by former Minister of Finance Mangala Samaraweera that the previously awarded tender for the manual pasting of stickers would be changed.
However, during a meeting on 23 September chaired by former Treasury Deputy Secretary A.K. Seneviratne, the Ministry of Finance had compelled stakeholders to comply with the physical and manual pasting of stickers within three months’ time, The Sunday Morning Business reliably learnt.
In the meeting, it was noted that based on a technical committee report done recently, the Excise Department decided to implement the requirement for a foolproof sticker instead of a digital authentication code, and a digital option was not discussed at all. It should also be highlighted that no changes were made to the tender despite the earlier promise at this point too.
In response, the industry vehemently expressed their opposition and requested for a grace period of one year to import the required machinery to adhere with the requirement.
Reliable sources indicated that several deadlines for implementation were discussed but no agreement was reached, and the chair of the meeting assured the industry that he would get back with a date following discussions with Minister Samaraweera, but nothing was communicated following that.
One of the main aims of the new requirement was to curb the growing illicit liquor production in the country that reportedly causes billions in losses per annum to government revenue.
The Government expects to add Rs. 40 billion per annum to excise revenue under this sticker regime. According to the Ministry of Finance, the excise revenue target in 2019 was Rs. 130 billion, but it had only reached Rs. 68 billion as at end-July last year.