High taxes leading to high consumer prices of premium products have led to a decline in premiumisation in Karnataka, the lowest in the country at 6.8%
Consumers in Karnataka are paying the highest prices for Premium AlcoBev products
Bengaluru (Karnataka), June 24, 2022: The International Spirits & Wines Association of India (ISWAI), the apex body of the premium AlcoBev sector, strongly urges the State Government of Karnataka to consider rationalisation of Additional Excise Duty on premium products in order to generate revenues from the local consumption of quality premium AlcoBev brands. The current taxation structure in the state has resulted in Indian-Made Foreign Liquor (IMFL) consumption being skewed towards the cheap segment due to the significant MRP differences between the cheap and the premium AlcoBev products where cheaper brands are far cheaper, and the premium brands are far costlier than in other states. Karnataka is one of the largest AlcoBev-consuming states in India. However, the overall excise revenue generation is not in line with the consumption as even states which have lower consumption are generating comparatively higher revenues.
Underlining the need for tax rationalization that will lead to a moderation of consumer prices, Nita Kapoor, CEO, ISWAI said, “Karnataka, is an economic powerhouse and is a perfect model state for premiumisation because of its rapid urbanization, rising disposable incomes, and a cosmopolitan, diverse young educated working population. Despite these favourable conditions, premium alcohol products have seen a consistent decline in consumption in the last 4-5 years. This is primarily because Karnataka has the highest tax rates. ISWAI has been in constant discussions with the excise team and has shared various options that lead to improving the premium segment share in the industry and also improving the state excise revenue collections from this segment”.
Nita Kapoor, added, “Yet another pain point is the obsolete slab structuring which was last expanded six years ago and needs a revision. The industry is facing a very serious challenge to sustain operations on account of the rising inflation in its costs. Two of the largest input cost for IMFL are up by 26-30%. 2022-23 is the toughest year for the AlcoBev industry as it is facing a challenge to sustain operations with an ever-increasing cost of materials and no relief from the state to expand the current slab structures”.
Expressing concern, Suresh Menon, Secretary-General, ISWAI, said, “The MRP variations on premium products, between Karnataka and other states, are significant. The taxes paid on our members’ products in Karnataka are so high that they are equal to or even lower than the MRPs of the same products in some of the states such as Maharashtra, Delhi, West Bengal, Odisha, and Telangana, due to which consumers in the State have to either pay an exorbitant price for their preferred brands or look for alternate sources outside Karnataka.” He further added, “This can result in leakages and lead to a proliferation of informal supply chains where people can buy liquor from neighboring states. The risk of counterfeits increases with such informal supply sources, which will not only harm public health but also cause loss of State revenues.”
ISWAI also underlined the fact that states such as UP, Maharashtra, Telangana, Delhi, West Bengal, etc that encouraged and promoted premiumisation, have seen an increase in revenue growth. The Karnataka premium segment is only around 6.8% of the total industry, and is declining year-on-year, while the comparable figures for other states are at least 10%, with Telangana and Odisha constituting as high as 54% and 22% respectively.
ISWAI, along with its member companies, supports the state government in devising a consistent and progressive alcohol policy and aims to enhance general education concerning the responsible consumption of alcoholic beverages.
