Excise duty hike in Karnataka would lead to dowtrading, may impact sales, say liquor makers

Liquor manufacturers on Friday raised concerns about the Karnataka government hiking tax on Indian made foreign liquor (IMFL), saying the move will increase consumer prices and adversely hit sales.

The newly-elected Karnataka government on Friday presented its budget for 2023-2024. Chief Minister Siddaramaiah, in his budget speech, announced a 20 per cent hike in existing rates of additional excise duty (AED) on Indian Made Foreign Liquor (IMFL) on all 18 slabs.

Liquor industry associations Confederation of Indian Alcoholic Beverage Companies (CIABC) and International Spirits and Wines Association of India (ISWAI) said with this AED, Karnataka would become the most expensive state for spirits in India. CIABC in a statement said this hike in the AED may not increase the revenue for the state exchequer.

"Consumer prices in Karnataka are already very high. I think further increase, that too to that extent, is going to hit sales in a big way," said CIABC Director General Vinod Giri. It further said, there is enough empirical data to show that the liquor demand turns quite elastic after 8-10 per cent increase in price. "We may also see consumers downgrade to cheaper products," he added.

ISWAI CEO Nita Kapoor has urged the state to rationalise AED, reduce theP of premium brands in line with its neighbouring states. "The state share of taxes at 80 per cent of P has restricted the growth of premium brands in the state. This move will result in a further decline of premiumisation in Karnataka and proliferate informal supply chains where people will buy from neighbouring states," she said.

According to CIABC, consumer prices in Karnataka are already very high. "Considering that we fear that this tax increase may actually not lead to more tax collection as expected by the government, but will turn out to be counterproductive as many such increases in the past in other states have been," said Giri adding "if that happens then all major stakeholders, ie, the Government, the industry and the consumer will come out poorer."

Liquor is a major contributor to the state exchequers. CIABC represents domestic IMFL manufacturers, while ISAWI is an association for the national and international premium spirits & wine brands in India.

Catch the latest stock market updates here. For all other news related to business, politics, tech, sports, and auto, visit Zeebiz.com.