Billions lost through tax-unpaid liquor sold through Sri Lanka licensed outlets
ECONOMYNEXT – Large volumes of tax unpaid hard liquor is sold through the licensed wine shops, losing billions in taxes, where over 200 are controlled by six players who have bought them for ‘staggering’ prices, Sri Lanka’s top alcohol firm has said.
"Cogent evidence has surfaced that some unscrupulous liquor traders are offering staggering prices to purchase retail licenses with the sole intention of channelling their non-invoiced, tax unpaid liquor and thereby evading a colossal amount of tax revenue to State Coffers," Harry Jayawardene, Chairman of Distilleries Corporation of Sri Lanka told shareholders.
"This issue has reached unprecedented heights, whereby 6 traders are currently controlling over 200 licenses out of approximately 1000 licenses in the name of their kith & kin, thereby defrauding the State of billions of Rupees whilst the regulators turn a deaf ear and blind eye."
Individual wineshop owners now control about 35 to 45 shops in some instances, industry sources say.
Sri Lanka has encouraged the creation of mafia style activities including smuggling of various items including cigarettes, illicit brewing of hard liquor, bribing of customs officials and under-invoicing of imports, though unreasonably high taxes or regulations.
The mafias of Russia and former Eastern Europe created by exchange and import controls.
Blackmarkets and shortages are also created by Sri Lanka’s Consumer Affairs Authority from time to time through price controls.
Under current regulations, manufacturers cannot own retail licenses directly and no single individual can own more than three, encouraging only those who are willing to break the law to build retail wine shop networks.
Wines shop licences are being traded in the secondary market for as much as 50 million rupees depending on the location and monthly sales, according to industry sources.
Meanwhile Jayawardene says no buyer of such licenses can hope to recover the investment except through the sale of tax-unpaid products.
"The fact that these unscrupulous traders are paying such exorbitant amounts to licensees itself is a proof of the existence of such illegal trade and indicates how rampant corruption has spread like a disease in the industry," Jayawardene said.
"Unfortunately, such businesses are carried out with the connivance of the enforcement authorities who are supporting these traders."
According to industry sources a 50 million rupee investment is recovered in about 3-4 years.
Adulterated and counterfeit brands are also available in the hill country and the North and the East where checking is limited, Jayawardene said. Large bulk discounts offered by producers also point to tax evasion, he said.
"As a result, the State is losing significant revenue; as the required standard of checking is either not carried out, or not supervised at all by the regulators," he said.
"In the North and East products are delivered to licensees almost 20% cheaper and it is obvious that these products are non-invoiced and tax unpaid."
Analysts say the illegal activities in alcohol retail can be countered to some extent by allowing legal consolidation of retail shops as well as through the issue of licenses to supermarkets, provided they are not rented to third parties, which can be easily checked.