- Excise duty harmonization to help Government garner more revenue and help consumers get value/premium spirits at a price point comparable to neighbouring states
- Harmonization measure to help in attracting new investment and create more direct & indirect employment opportunities
Bengaluru: Excise duty on Alcohol beverages is undoubtedly a major source of revenue for several State Governments. On the contrary, skewed duty structure and inconsistencies in excise policy followed by some State Government\s are not only denting excise duty collection potential but also deterring responsible drinking amongst masses.
Further, the skewed excise duty, besides making cheap segments cheaper, has made the value/premium segment exorbitantly expensive. This essentially means encouraging abusive & binge drinking habits at a lower price bracket and forcing consumers of the value/premium segment to think of alternate sourcing from other geographies & channels owing to the high price point in the State.
The classic case of this paradox is Karnataka which sells one of the highest bottled alcohol beverages in South India but lags severely behind in per case excise revenue collection as compared to other states. For the financial year 2019-20, the sale of spirits in Karnataka was at 60.09 million cases and excise collection stood at Rs. 21,584/- crore. While in the case of Telangana, 34.88 million cases were sold, with excise collection standing at Rs. 22,210/- crore. This clearly shows that Karnataka despite selling almost 72 % more spirits than Telengana by volume, collects excise revenue less by almost 3 %.
The table below provides data on the volume of spirits sold in different southern states and excise revenue generated by respective Governments. This clearly reveals that spirits sales in Karnataka while being the second-highest (only marginally lower to Tamilnadu the highest spirit sales State by volume), the per-case excise collection is the lowest among all southern States.
A view of Alcobev Industry – Southern States – FY 2019
Alcohol industry veterans stated that this scenario is due to the fact that spirits sale at low end in Karnataka is very high as compared to any other major market in the country, thereby contributing to lower per case revenue. On the contrary, popular and premium IMFL brands, which have high sale potential in the state, is witnessing muted sales owing to very high excise duty, probably the highest in the country.
Segment-wise spirits sale data reveal that the cheap + regular category accounted for 93 % of total spirits sales in Karnataka, while the value + deluxe + premium category accounted for a minuscule 7 %. On the contrary in Telengana, the cheap + regular category accounted for 49 % of total spirits sales, while the value + deluxe + premium category accounted for 51 %.
Looking at excise duty levied across different segments and States reflect the high skewness in Karnataka. The following table explains the skewness and the resultant price of spirits.
A comparison of tax applied in major markets on a like to like category is shown:
Total tax comparison per case on major segments across a few States:
The above data clearly reflect the lop-sided levy prevailing in Karnataka. While in Karnataka the levy is lowest in the local & mass moving brands category, on the contrary, the levy is highest in value / deluxe / premium / bottled in the India scotch category. The lowest levy category accounts for 93 % of total spirit sales, while the highest levy category accounts for just 7 %. Thus, industry veterans opine that this skewness is hurting Karnataka excise collection potential. By harmonising excise levy slab, a substantial increase in sales starting from value / deluxe category & upwards is bound to happen and owing to which Karnataka Government could generate more revenue.
Against this backdrop, alcohol industry veterans suggest that harmonization of excise duty structure in Karnataka will be a win-win situation both for State Government as well as consumers. This harmonization measure besides helping Karnataka to get additional revenue will also give consumers access to spirits of their choice at a better price point within the State, thereby deterring them from getting it from across borders.
Most importantly, harmonization is likely to attract additional investment both from existing & new players to set up a production facility in Karnataka as the State has undoubtedly a huge market waiting to be tapped. In addition, it is suggested that lesser slabs along with tax harmonization will lead to long term industry sustenance.
This will ensure that Karnataka also becomes homogenous with other markets and provide a level playing field for all segments/categories in spirits production and sales. This will go a long way in promoting responsible drinking and deterring abusive drinking.
Karunakar Hegde, Vice President, Federation of the Wine Merchants Association (FWMA), Karnataka, said that “People coming from other states like Maharashtra and others, carry one or two bottles of the higher segment in the state and thus Karnataka is losing revenue in such cases. We are expecting the government to call a pre-budget meeting sometime next week and prior to this we have given plenty of proposals and requests to the government asking them not to hike the duty on IMFL and the percentage of profit that dealers in Karnataka get is very meagre because, with 10 per cent margin, it is very difficult to run the show. We have requested the government to hike the percentage of profit also.”
Hegde added that this time the government should not hike the excise duty as during Covid it was raised by 17 per cent and though the sale of alcohol decreased by 10 to 20 per cent during this period, just because of the hike in duty structure, the government was able to achieve 100 per cent revenue targets and not because of increased sales of alcohol.
Bishan Kumar, Editor-in-Chief, Spiritz, one of the most widely circulated alcobev magazines of the country, says “By imposing additional excise duty on spirits and beer, Karnataka government is putting additional burden on consumers, which could also lead to thinner margins for liquor & beer manufacturers. The state government’s excise policies have been very industry-friendly but government’s bid to shore up its revenue is the cause of the Government’s latest move”.
