In recent years, Sri Lanka has undertaken a major re-assessment of its revenue strategies, setting an ambitious target of Rs. 232 billion for the Department of Excise – the highest target in its history.
In a bid to meet this goal, the then Government had explored all possible avenues to increase revenue, including revising excise fees for liquor licences. In January, then President Ranil Wickremesinghe, who also served as Finance Minister, issued an amendment to the Excise Ordinance.
This amendment drastically increased annual excise licence fees across various categories. Distillery licence fees surged from Rs. 1 million to Rs. 25 million (excluding palmyrah arrack), while the licence fees for palmyrah arrack and toddy bottling were raised from Rs. 250,000 to Rs. 5 million and from Rs. 1 million to Rs. 10 million, respectively. Additionally, the retail licence fee for liquor in municipal areas was increased to Rs. 15 million, while fees in other areas rose to Rs. 12.5 million and Rs. 10 million, depending on location.
Hotels authorised by the Sri Lanka Tourism Development Authority (SLTDA) also saw fee hikes, with charges reaching Rs. 1 million for hotels with 200 rooms or more, Rs. 500,000 for hotels with 20 to 199 rooms, and Rs. 250,000 for hotels with fewer than 20 rooms. Interestingly, the fee for nightclubs was reduced from Rs. 500,000 to Rs. 250,000.
Mounting debate
While the fee hikes were expected to bring a significant boost to Government revenue, the results have been dramatic. In 2023, the Department of Excise generated approximately Rs. 200 million from liquor licences. By October this year, that figure had skyrocketed to Rs. 3.1 billion – a more than 15-fold increase, as learnt by The Sunday Morning.
However, this surge in revenue has been accompanied by mounting controversy over the issuance of these licences. Leader of the House and Member of Parliament (MP) Bimal Rathnayake revealed that 361 liquor licences had been issued between 1 January and 6 October this year, and alleged that the distribution of these licences had been politically motivated.
Rathnayake claimed that former President Wickremesinghe had authorised the issuance of these licences as a means to facilitate political crossovers in exchange for bribes. He further pointed out that the largest number of licences – 110 – had been issued in the Western Province, which is seen as a stronghold of political power. Other provinces, such as the Southern and Central Provinces, also saw significant numbers of licences issued, leading Rathnayake to suggest that the distribution of licences was part of a broader political scheme.
Out of the total licences granted, 172 were issued under the FL-4 category, which permits the retail sale of liquor in wine stores.
Rathnayake’s claims of political influence in licence distribution have stirred considerable debate within Parliament, with some lawmakers calling for an investigation into the alleged misuse of public office.
Allegations and scandals
Liquor licences in Sri Lanka are governed by Extraordinary Gazette No.1544/17 and Excise Notification No.902 dated 4 October 2008, which lay out guidelines for issuing licences.
A Supreme Court order in August 2023 (SC/FR/116/2023) further clarified that no licence should be granted in violation of these laws. The order stipulated that no more than two licences could be issued to a single individual or organisation within a district in order to prevent monopolies and ensure fair distribution.
Despite this legal limitation, there have been accusations that licences were still being granted in violation of the court’s injunction. A group of liquor shop owners filed petitions, leading the Supreme Court to issue an interim injunction halting the issuance of new licences. The court extended the injunction in October this year and granted leave to hear four petitions from wine shop owners challenging the licences issued in defiance of excise regulations. The case will be heard on 6 February 2025.
The current administration under President Anura Kumara Dissanayake has pledged to investigate these allegations, including the broader issue of a fake security sticker scandal that has reportedly cost the Government billions in lost tax revenue.
Minister Wasantha Samarasinghe, a member of the National People’s Power Executive Committee, has claimed that excise officials took bribes of up to Rs. 2 million to issue liquor licences during the previous Government’s tenure.
Samarasinghe further alleged that the Commissioner General of Excise had issued 500 new licences, including 70 to a businessman currently behind bars over failure to pay tax dues, who had reportedly paid as much as Rs. 30 million per licence.
In addition to the controversies surrounding new licences, a large-scale fraud involving counterfeit liquor stickers was also uncovered. This scam, which has reportedly cost the Government Rs. 60 billion in lost tax revenue, centres around the sale of fake excise stickers affixed to bottles of liquor. Arjun Aloysius’s W.M. Mendis and Company has been implicated in this scheme, with reports suggesting that it is responsible for Rs. 440 million in lost taxes.
Amid these scandals, the Department of Excise has been under intense scrutiny for its handling of liquor licence renewals.
An audit conducted by the National Audit Office (NAO) revealed that during the 2023 renewal process, key documents – such as Police reports, Tourist Board approvals, and tax clearance certificates – were missing from several licence files. This raises concerns over the department’s adherence to the legal requirements for licence issuance.
Moreover, some renewals were processed without the necessary approvals due to technical delays, leading to further questions about the integrity of the process. Despite these concerns, the Government has continued to push forward with its strategy of increasing excise revenue, even as political and social resistance to the issuance of new licences grows.
Ongoing legal challenges
In this context, when The Sunday Morning contacted former Commissioner General of Excise M.J. Gunasiri, he noted that policy decisions made by the previous Government were now being challenged in court. He further stated that the officials named in the case would submit explanations to the court.
“We have not violated any law. Instead, we brought in a massive income for the Government. We have not acted against the laws and regulations. We were merely following policy decisions made by the previous Government,” he stressed.
Gunasiri further denied allegations that licences had been issued multiple times per district in violation of rules and regulations.
He argued that there had been a significant increase in illicit liquor consumption in the country, especially after the Covid-19 pandemic and during the economic crisis. “However, after the introduction of the new licensing mechanism, there was a noticeable reduction in illicit liquor sales. Moreover, a huge income was generated,” he said.
“We were given a target of achieving Rs. 232 billion, the highest target in the history of the department. This was no easy task. We had to explore all possible avenues to meet this target,” he added.
Gunasiri was removed from his post with immediate effect on 8 October. Then Cabinet spokesperson Minister Vijitha Herath confirmed that the former Commissioner General had been serving on a contract basis since his appointment in December 2020, following the controversial removal of R.A. Bodaragama.
Gunasiri’s replacement, U.D.N. Jayaweera, was succeeded as Commissioner General by U.L. Udaya Kumara Perera recently. Perera, a Special Grade Officer of the Sri Lanka Inland Revenue Service, served as a Senior Commissioner at the Inland Revenue Department until his latest appointment.
Herath stressed at the time the importance of the Excise Department as the primary revenue collection agency for the Government, noting that the department’s efficiency and governance directly affected national revenue.
When contacted, Excise Department Spokesman and Deputy Commissioner of Studies and Research Roshan Perera stated that there was an ongoing court case regarding the matter. He also noted that due to the recent changes in positions within the department, proper communication had yet to be established.
The new Commissioner General assumed duties on Thursday (12). However, attempts by The Sunday Morning to contact him were unsuccessful.