Move will increase clandestine trade

Our Bureau

Retrograde move

New policy

on IMFL will boost the sales of arrack.

If duties are

raised, end consumer price will increase substantially.

Discontinuing wholesale

licences will lead to cartelisation.

Proposed duty

hike will impact brands at every price point.

Bangalore, April 28

A liquor industry body has said that Karnataka Government's move to change the excise duty and additional excise duty slabs will result in revenue losses for the State.

The Association of Distillers, Brewers & Vintners of India has petitioned to the State Government that if the duties are changed, the end consumer price will grow substantially.

The Director-General of the association, Mr Sushil Haksar, has said that a steep increase in consumer price will allow illegal operators to resume supply of non-duty paid stocks.

"This will lead to a major fall in the legitimate Government revenues," Mr Haksar said.

Ban arrack

He also said that the new policy on Indian-made foreign liquor and beer will in fact boost the sales of arrack, a brew which has been banned in all other southern States.

As arrack is part of the unorganised sector, it is extremely difficult to regulate and capture its full revenue potential, the petition to the Chief Minister, Mr H.D. Kumaraswamy, said.

"IT, biotech, wine, pub culture and arrack cannot go together," Mr Haksar said. Hence, it was necessary to ban sale of arrack, he said.

Price differential

In case the duties are revised, at a basic price of Rs 399 per case of 180 ml bottle (full tax paid), end consumer price will be Rs 41 per bottle in Karnataka compared with Rs 15 per bottle in Goa. This huge price differential will increase clandestine trade, the petition said.

Unfair trade practices

The petition pointed out that the cost of expanding and strengthening Karnataka State Beverages Corporation Ltd (KSBCL) to replace the wholesale licensees will also not be a viable proposition. Also, discontinuing the wholesale licences can lead to retailers forming cartels leading to unfair trade practices, it said.

Result in degrowth

The existing excise policy had in fact resulted in keeping the final consumer price at a minimum level as well as at an affordable level. But the proposed duties will in fact impact the brands at every price point and is estimated to push up the consumer prices by around 15 per cent.

"The current growth of 25 per cent will crash to degrowth," Mr Haksar said. He said the cost of putting up additional infrastructure by KSBCL will be more expensive than the additional 5 per cent margin to the corporation. He said progressive reduction in duties would, in fact, accelerate the growth and stimulate growth in Government revenues.

(This article was published in the Business Line print edition dated April 29, 2006)
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