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What is the proposed taxation structure, how is it different from the current excise policy and how much will prices of liquor increase in the state, let’s take a quick look:
The Congress-led government in Karnataka has proposed a policy to tax liquor based on the actual content of alcohol in the beverages.(PTI)The Congress-led government in Karnataka has proposed a policy to tax liquor based on the actual content of alcohol in the beverages. If implemented, the policy will potentially change the pricing landscape of the spirits industry.
Karnataka is home to Bengaluru, one of India’s most lucrative liquor markets, with its large base of young techies and multinational workforce.
The immediate effect of the policy could be an increase in prices of budget liquors, likely to be borne by low-income consumers. Karnataka levies the highest excise on liquor at 83% as per the existing system.
“A sharp increase in prices here will undoubtedly disrupt the market dynamics and is a slow poison for our trade,” Wine Merchants Association General Secretary B Govindraj Hegde told Deccan Herald.
What is the proposed taxation structure, how is it different from the current excise policy and how much will prices of liquor increase in the state, let’s take a quick look:
Draft Policy:
The Karnataka government on 18 April issued a draft notification to implement a tax system based on the actual alcohol volume in beverages. In other words, beverages with higher alcohol concentration will attract higher tax.
If the draft policy is enacted, Karnataka will be the first state to adopt the Alcohol-in-Beverage (AIB) taxation model, a practice common in Western countries. The draft is currently open for objections and suggestions until 25 April.
How Liquor is Taxed:
As per the current system, the Karnataka government controls the retail prices of liquor— manufacturers declare ex-factory prices, on the basis of which the state fixes the MRP. The liquor is categorised into 16 slabs based on its MRP. Each slab attracts an additional excise duty.
The new policy proposes to reduce the number of slabs from existing 16 to eight, while allowing producers to decide the slab in which their liquor sits. This means liquor brands can set their own MRP based on market conditions instead of waiting for state approval.
Vinod Giri, Director General of the Brewers Association of India, told NDTV Profit, “It’s a historic policy reform for alco-bev companies. AIB is truly the gold standard in alcohol taxation. It is based on the premise that the product to be taxed is alcohol and not the water that comes along with it.”
What Changes:
According to a report by brokerage firm Nomura, under the new policy, basic excise duty will be revised to ₹1,000 per litre of pure alcohol from the current ₹50 per bulk litre of Indian Made Foreign Liquor (IMFL).
If this policy is rolled out as such, it will rationalise the prices of premium liquor but will make budget liquor more expensive for the consumer.
Nomura’s report described this as an “acceleration in premiumisation,” with an aim to expand the market for premium spirits. It added that while large companies were better placed to cushion the impact of hiked prices without losing volumes, smaller regional players may suffer.
According to Nomura’s indicative calculations, premium spirits, such as Black Dog Scotch Whisky or B&W Scotch Whisky Aged 12 Years, are expected to see a 5-15% drop in prices. Meanwhile budget liquor, such as DSP Black Deluxe Whisky, is set to witness a price hike of 11-16%.
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