The liquor market in Karnataka has been experiencing a notable slump in sales, prompted by the recent decision of the State government to elevate the additional excise duty (AED) on both Indian-made liquor (IML) and beer. This move, introduced in the Chief Minister’s Budget announcement on July 7, witnessed a 20% increase in AED for IML across all tiers, along with a hike in the AED on beer from 175% to 185%.

The Federation of Wine Merchants’ Association, Karnataka, issued a statement indicating a significant dip in sales and revenue during the initial fortnight of August. The data revealed contrasting trends in the sales performance. July 2023 marked a 19.27% surge in IML sales compared to the same period in 2022. In July 2022, 54.89 lakh boxes of IML were sold, while the number escalated to 65.46 lakh boxes in July 2023. Similarly, beer sales experienced a substantial growth of 26.83% in July 2023 compared to the corresponding period in 2022. Despite the new pricing coming into effect on July 20, retailers continued to sell their stock at the previous rates until the end of the month, according to B. Govindraj Hegde, General Secretary of the association.

However, the initial half of August depicted a contrasting scenario. Only 21.87 lakh boxes of IML were sold, marking a decline of 14.25% in comparison to the sales recorded in the same period of August 2022. In contrast, beer sales exhibited an upward trajectory with a growth of 21.07% compared to the first fortnight of August 2022.

A concerning aspect brought to light by Mr. Hegde was the proliferation of counterfeit liquor brands due to the surge in AED. He alleged that this influx of fake brands could not occur without the support of officials. The market has witnessed the infiltration of counterfeit liquor from labels in Telangana, Maharashtra, and Goa, along with the sale of imitation brands labeled as ‘military canteen’ and ‘duty-free’ in certain districts.

Mr. Hegde remarked on the overall impact of the increased AED, noting that retailers have suffered a decline of 10 to 15% in revenue since the duty hike. The changes have led consumers to shift from higher-priced brands to those of lower value.

It is noteworthy that the International Spirits and Wine Association has also voiced its concerns regarding the excise duty increase and its effects on the liquor industry. The industry body has appealed to the State government to reconsider the decision in light of its potential implications for both businesses and consumers.

This situation underscores the complexity of managing excise duties and the far-reaching consequences they can have on revenue, market dynamics, and consumer behavior. As the state navigates these challenges, industry stakeholders, including both authorities and businesses, will need to collaboratively address the issues arising from these fiscal changes to ensure a balanced and sustainable ecosystem within the liquor sector.

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