Sri Lanka’s liquor producers are expected to go to courts if the Ministry of Finance forcibly implements the widely opposed foolproof sticker requirement for local liquor products with effect from 1 March, The Sunday Morning Business learns.
Industry sources told us that this is because the industry players are not in a position to implement this requirement at the moment due to its impracticality. It appears that legal action is seen as the only solution to obtain a grace period, as the Ministry would not offer one.
A meeting is scheduled to take place on the 26th of this month between the Ministry of Finance, Department of Excise, and industry stakeholders. Depending on the outcome of the meeting, a lawsuit would be filed subsequently.
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 then Minister of Finance.
The excise notification made implementation compulsory with effect from 1 June 2020, 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, Department of Excise officials, and the Ministry of Finance to discuss the matters and concerns pertaining to the implementation of the sticker. However, it was postponed due to unknown reasons.
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 so had 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.
The awarding of the tender for this project to the Indian company Madras Security Printers (MSP) is in 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, whereas 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 existing machinery as well as the transportation of new machinery would be difficult and not possible without breaking the walls of the building.
In addition to this, the industry is worried about the insufficient time provided to comply with the requirement and the additional costs involved in printing the new stickers, which amounts 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 Department of Excise, 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 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 held on 13 August last year, the Ministry of Finance and the Department of Excise 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 held on 23 September, chaired by former Deputy Secretary to the Treasury 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 learns.
In the meeting, it was noted that based on a technical committee report done recently, the Department of Excise 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 to the requirement.
Reliable sources indicated that several deadlines for the implementation were discussed but no agreement was reached, and the Chair of the meeting had assured the industry that he would get back with a date following discussions with former 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.