The Congress-led government in Karnataka has proposed taxing liquor based on its actual condition alcohol contents. If implemented, this policy could reshape the pricing environment in the spirits industry.
Karnataka, home to Bengaluru, one of India’s most lucrative liquor markets with a large base of young techies and a multinational workforce, would see immediate effects.
Budget prices alcohol are likely to rise, impacting low-income consumers. Karnataka already levies the highest excise duty on liquor at 83% under the existing system.
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“A sharp rise in prices here will undoubtedly disrupt market dynamics and is a slow poison for our trade,” said Wine Merchants Association general secretary B Govindraj Hegde. Deccan Herald.
What is the proposed tax structure? How is it different from the current consumption policy and how much will the price of spirits increase in the state? Let’s take a quick look:
Draft policy
The Karnataka government on April 18 issued a draft notification to introduce a tax system based on the actual volume of alcohol in beverages. In other words, drinks with a higher alcohol concentration will attract a higher tax.
If approved, the draft policy will make Karnataka the first state to adopt the alcohol-in-beverage (AIB) taxation model, a practice common in western countries. The proposal is currently open for objections and suggestions until April 25.
How alcohol is taxed
Under the current system, the Karnataka government controls the retail prices of liquor – manufacturers declare ex-factory prices, based on which the state sets the MRP. The government categorizes liquor into 16 slabs based on its MRP. An additional excise duty applies to each board.
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The new policy proposes to reduce the number of boards from the existing 16 to eight, while allowing producers to decide which board their liquor will be included in. This new policy would allow liquor brands to set their own MRP based on market conditions rather than waiting for government approval.
Vinod Giri, CEO Brewers Association of India said NDTV profit“It’s a historic policy reform for alco-bev companies. The AIB really is the gold standard in alcohol taxation. It’s based on the premise that the product to be taxed is the alcohol and not the water that comes with it.”
What will change
According to a report by brokerage firm Nomura, the basic consumption tax will be adjusted as part of the new policy ₹1,000 per liter of pure draft alcohol ₹50 per volumetric liter of Indian Foreign Liquor (IMFL).
If this policy is implemented as it is, it will rationalize premium liquor prices, but cheap liquors are more expensive for consumers.
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Nomura’s report described it as an “acceleration of premiumization” to expand the premium spirits market. He added that while large companies are better positioned to cushion the impact of increased prices without losing volume, smaller regional players may suffer.
According to Nomura’s guidance calculations, premium spirits such as Black Dog Scotch Whiskey or B&W Scotch Whiskey Aged 12 Years are expected to see a 5-15% drop in prices. Meanwhile, low-end liquor such as DSP Black Deluxe Whiskey is expected to increase prices by 11-16%.
