Close to 40 percent of the total liquor production by manufacturers enter the market through illicit means to evade taxes causing a revenue loss between Rs. 80-100 billion to the State coffers each year according to legal distillers and brewers.
Licit liquor manufacturers totalling around 63 percent, contribute around Rs. 300 billion in tax revenue to the State.
A leading distiller told a post-Budget discussion last week “This illicit and unfair trade has been continuing for ages without any interruption incurring a major tax revenue loss to the country and harming the health of consumers,” he said.
He said the illicit liquor business is much stronger than the criminal network in the country as it’s backed by businessmen with links to politicians and their supporters.
However, according to data of around 25 licensed distillers and brewers, four contribute nearly 92 percent of the tax revenue while 21 manufacturers make up only 8-9 percent of the tax income to the state.
Licit beer and spirits sales have been flat so far this year. Legal liquor consumption reported 9.5 percent and Year-on-Year decline during the first ten months of 2024 due to tax increases, according to statistics.
The 2025 Budget raised the corporate income tax rate for cigarettes, liquor and gaming businesses from 40% to 45% and removing exemptions on export services, applying a 15% tax instead. The Government expects to raise Rs. 130 billion in excise revenue from cigarettes in 2025 and to achieve this, excise taxes were increased by 5.9%.
However, tax experts believe that the 5.9% tax hike which came into effect from January this year is not sufficient to meet the Rs. 130 billion excise revenue from cigarettes.
The 2025 Budget targets a deficit of 6.7% of GDP, marginally above the IMF’s preference of 5.2% for the year. To bridge the Budget deficit the Government hopes to increase revenue to 15.1% of GDP this year.
