‘High taxes leading to high consumer prices of premium products has led to a decline in premiumisation in the State, the lowest in the country at 6.8%’
The International Spirits & Wines Association of India (ISWAI), the apex body of the premium AlcoBev sector, has strongly urged the Karnataka government to consider the rationalisation of additional excise duty on premium products in order to generate revenues from the local consumption of quality premium brands.
The current taxation structure in the State has resulted in India-Made Foreign Liquor (IMFL) consumption being skewed towards the cheap segment due to the substantial differences in MRP 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, as per the ISWAI.
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, according to the apex body.
Underlining the need for tax rationalisation that would lead to a moderation of consumer prices, Nita Kapoor, CEO, ISWAI said, “Karnataka is a perfect model State for premiumisation because of its rapid urbanisation, 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 was primarily because the State has the highest tax rates and the ISWAI had been in constant discussions with the excise team and 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, she added.
Ms. Kapoor further said, “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.’‘
The year 2022-23 would be 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. For instance, the input cost for IMFL went up by 26% to 30%, she argued.
Suresh Menon, secretary-general, ISWAI, said, “The MRP variations on premium products, between Karnataka and other Sates, are significant. Also, the taxes paid on our members’ products in the State are so high when compared with prices in Maharashtra, Delhi, West Bengal, Odisha, and Telangana. Therefore, consumers in Karnataka are forced to pay an exorbitant price for their preferred brands or look for alternate sources outside the State.”
This could result in leakages and lead to a proliferation of informal supply chains where people could buy liquor from the neighbouring States. The risk of counterfeits would also increase which would not only harm public health but also eat into State revenues, he cautioned.
As per data relesed by the ISWAI, States 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.