The International Spirits & Wines Association of India (ISWAI), the apex body of the premium alcobev sector, has urged the Karnataka government to consider the rationalisation of additional excise duty on premium products to generate revenues from the local consumption of quality premium alcobev brands. 

The current taxation structure in the State has resulted in Indian Made Foreign Liquor (IMFL) consumption skewed towards the low-priced segment due to the significant MRP differences with the premium products. It has resulted in lower-priced liquor brands far cheaper than the premium brands are far costlier than in other States, a press statement from ISWAI said on Friday. 

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 generate comparatively higher revenues. 

‘Decline in premium alcohol consumption’

“Karnataka is an economic powerhouse and 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,” ISWAI CEO Nita Kapoor said.

He added, “This is primarily because Karnataka has the highest tax rates. ISWAI has been in constant discussions with the excise team and has 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.”

Inflation impact

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. Two of the largest input cost for IMFL are up by 26 per cent and 30 per cent.

“The industry faces a challenge to sustain operations with an ever-increasing cost of materials and no relief from the State to expand the current slab structures,” Kapoor pointed out.

Suresh Menon, Secretary-General, ISWAI, said, "The MRP variations on premium products, between Karnataka and other States, are significant. The taxes paid on our members’ products in Karnataka are so high that they are equal to or even lower than the MRPs of the same products in some of the States such as Maharashtra, Delhi, West Bengal, Odisha, and Telangana, due to which consumers in the State have to either pay an exorbitant price for their preferred brands or look for alternate sources outside Karnataka.”

He further added, “This can result in leakages and lead to a proliferation of informal supply chains where people can buy liquor from neighbouring States. The risk of counterfeits increases with such informal supply sources, which will not only harm public health but also cause loss of State revenues.”

Positive signs from other States

ISWAI pointed out that UP, Maharashtra, Telangana, Delhi, West Bengal, etc., that encouraged and promoted premiumisation, have seen an increase in revenue growth. The Karnataka premium segment is only around 6.8 per cent of the total industry and is declining year-on-year, while the comparable figures for other States are at least 10 per cent, with Telangana and Odisha constituting as high as 54 per cent and 22 per cent, respectively.