Beer makers brood over proposed tax hike in Karnataka

Beer makers with large sales and manufacturing footprint in Karnataka are expressing concerns over State governments’ new proposal to raise additional excise duty (AED) on beer. Market players argue that price increases will drive consumers towards other alcoholic beverages and affect industry growth at large.

The hike in AED has been proposed in a draft notification to amend the Karnataka Excise (Excise Duties and Fees) Rules, 1968. The duty on beer produced in Karnataka or brought into the State will increase from 185 to 195 per cent, increasing 10 percentage points. This will potentially add ₹8-10 to the price of a 650 ml bottle, according to reports.

Sustainable solutions

“We are deeply concerned about the Karnataka government’s 10 per cent increase in additional excise duties on beer. This repeated and rapid escalation in taxation, only six months after the previous hike, is a major blow to the state’s beer sector and barley farmers at large. We urge the government to reconsider this detrimental move and collaborate with the industry for sustainable solutions promoting responsible consumption, supporting farmers, and fostering a thriving beer sector.” said a spokesperson of a leading beer company.

With Karnataka already having one of the highest beer prices in the country, the additional increase will drive consumers towards higher alcohol alternatives, impacting industry growth and capital investments, the spokesperson added.

This will be the second hike within a year. Previously, the State government in the 2023-24 Budget presented after Congress came to power, had increased the duty on beer from 175-185 per cent. It had also raised the duty on Indian Made Foreign Liquor (IMFL) by 20 per cent on all 18 slabs.

The Congress government has set the revenue collection target for the Excise Department at ₹36,000 crore. This comes as the party is aiming to maximise revenue to make room to fund the poll promises.

Shobhan Roy, Director-General of All India Brewers Association (AIBA), said, “This decision is poised to lead to a 20-35 per cent decrease in volumes. Since the taxation is volume-dependent, taxing this category more will result in a reduction in volume and a subsequent decline in current revenues. It would be more beneficial to tax beer less, as it would likely boost volumetric consumption, ultimately improving the overall tax profile.”

Six months ago, there was a tax hike on beer. It took half a year for the industry to stabilise prices for consumers, leading to acceptance and overall stability. Changing this parameter again within the next six months could adversely impact the category. We urge that the current situation be allowed to stabilise, and recommend not singling out the beer category for revenue purposes. It’s essential to also consider the spirits category, as it contributes significantly to revenue, he added.

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