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Liqour sales in Karnataka has dipped in August after the State government hiked taxes in a bid to fund the poll promises. With Karnataka now being the most expensive state for spirits, decline in premiumisation and proliferation of informal supply chains is being anticipated by the industry.
Karnataka Chief Minister Siddaramaiah in his first Budget after Congress’s come back hiked the additional excise duty on Indian Made Foreign Liquor (IMFL) by 20 per cent on all 18 slabs. Additionally, the duty on beer was hiked from 175 per cent to 185 per cent.
The sale of Indian Made Liquor (IML) in August so far is down by 14.25 per cent on year-on-year (Y-o-Y) basis at 21.87 lakh boxes, according to Federation of Wine Merchants Association Karnataka. In contrast, before the revised taxation hit, the sale of IML stood at 65.46 lakh boxes, up 19.27 per cent on a Y-o-Y basis.
The sale of beer in August so far stands at 12.52 lakh boxes, which although is an increase on Y-o-Y basis, is still lower than 29.80 lakh boxes sold in July. The federation also noted that fake alcohol labeled with the state names of Telangana, Maharashtra and Goa are being sold in some districts of the state. Highly priced alcohol in the disguise of Military Canteen and Duty free are also entering the state.
The International Spirits and Wines Association of India (ISWAI) highlights that this move will result in a further decline of premiumisation in Karnataka and proliferate informal supply chains where people will buy from neighbouring States.
Nita Kapoor, CEO, ISWAI told businessline, “We anticipate a sharp drop in the premium segment of the spirits industry which will see a 2 per cent segment share drop, downtrading to cheaper products and increase in proliferation from other contiguous states.”
Karnataka’s premium alcohol industry structure segment has been declining over the last few years and presently constitutes only 6 per cent of the market. This segment is highly taxed and is the most expensive in India. The abnormally high taxation for premium categories will restrict the normal consumer upgradation journey resulting in a polarized industry structure not seen in any other state in India, ISWAI notes.
The association requests the Karnataka government to withdraw the increase in the AED on premium products and come up with a policy that will boost the low levels of premiumisation through more reasonable pricing of premium products from its current position. Rectifying this is believed to yield a consumption-driven volume growth and lead to a much-desired growth in excise revenue collections for the state, notes Kapoor.
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