Mumbai: The liquor industry is planning to ask the governments in Karnataka and Goa to rethink their decisions to increase excise duties on spirits and wines by 50-100%, as this could hurt business volumes after a consequent rise in prices.
The two states have favourable excise duties on spirit and wine in the country, but the new duties could make a bottle of wine or vodka in Karnataka and Goa among the most expensive in the country.
Currently in Karnataka, low-end spirit brands in the price range of Rs250-299 a bottle attract an excise duty of Rs40 per bulk litre, but this is set to be raised to Rs60 per bulk litre under the new scheme.
For premium spirits, which are priced at Rs2,050 per bottle or more, the excise duty was Rs225 per bulk litre. This tax will likely go up to Rs338-450.
Prices of sprit and wine brands in the two states will be raised by Rs80-100 per bottle in the premium segment and by Rs50-55 in the regular segment, industry members said.
Karnataka announced the revised duties last week and Goa is expected to come out with the new rates soon.
The new excise duty structure in Karnataka at the rate of 200% for spirit brands (whisky, rum, vodka, etc.) will be higher than duties in Maharashtra, which has the highest excise duty in the country for these alcoholic products at a rate of 150%. The duty on wines will be at par with Maharashtra’s 200%, which was hiked in November 2007.
The new tax in Goa will be almost in the same range as in Karnataka, which would make liquor prices in this tourism hot spot more expensive.
As a result, spirits and wines in these three states will be costlier by 50-100% than in states like Punjab and Haryana. For example, the premium vodka brand of Diageo Plc., Smirnoff, will now cost Rs604 a bottle in Karnataka, while the price in Punjab and Haryana will remain Rs330 a bottle.
Asif Adil, managing director of Diageo India Ltd, says, “The industry’s plea is that the government should realize the the duty hike will not result in an increase of government revenue but rather lead to decline as it will have direct impact on the sales volume.”
“The current revamp of the excise policy will result in dip of approximately 40% on premium segment volumes and this drop in volumes will be a result of the consumers drifting from quality products to inferior products,” he added.
Echoing this, an executive with UB Group, the country’s largest liquor company by domestic sales, said, “The government will realize the actual impact of the duty hike when the industry raises the prices.”
According to the industry, the previous excise structure of Karnataka provided good revenue in taxes as the relatively low prices encouraged people to choose quality products. This boosted growth in the premium segment by about 25% year-on-year.
The removal of additional customs duty in Karnataka in November 2007 had also resulted in a price drop of 17–25% across premium labels, which gave consumers better choices. Under this favourable tax scenario, the industry’s annual growth estimate for Karnataka was 20% to touch a volume of 4.32 crore cases of Indian-made foreign liquor for 2008-09.
The industry is not quite sure about this growth now, said an analyst with a global investment bank, who does not want to be identified.