To further impress the concerns of airports over the government’s proposal to reduce duty-free liquor and tobacco allowances, the Airports Council International (ACI), a global trade representative of airports worldwide, and the International Spirits and Wines Association on behalf of multinational alcoholic beverage companies, have independently called for a status quo at Indian airports.
“We urge the authorities to reject this proposal. Not only is it inconsistent with the latest attempts by the government to incentivise private capital to invest in the airport industry, but it undermines the growth opportunity for Indian airports and duty-free providers who are a driving force in the local airport economy,” Stefano Baronci, director general, ACI Asia-Pacific, said.
“Duty-free operators must be able to count on the expansion of airport infrastructure along with new retail space and a regulatory framework that incentivises the market to grow. Unfortunately, the [Ministry of Commerce and Industry’s] proposal will limit this objective if airports cannot generate non-aeronautical revenues to cover aeronautical cost,” Mr. Baronci said.
The proposal restricts the purchase of tax-free alcohol at airport duty-free shops to one 1-litre bottle per passenger and the purchase of cigarette cartons.
Amrit Kiran Singh, executive chairman of International Spirits and Wines Association of India (ISWAI), said calculations have shown this will have close to zero impact on the revenue/balance of trade/foreign exchange outflow of an economy of the size of India. However, it will have a major negative impact on sentiment.
“Duty free is an additional channel for business. The government should be encouraging additional channels for business in its efforts to re-energise the economy … over 75% of this channel is contributed by alcoholic beverages. Reducing 75% of this channel by 50% will break the back of this channel,” he said.
Mr. Singh said it would be unfair to compare the duty-free allowance of India with China or any other country as India has the highest basic customs duty (BCD) on alcoholic beverages at 150%. “China is less than 30%. Companies therefore use the duty-free channel to launch their upmarket brands. Duty free allows potential customers to try the new brand at a lower price and then buy it at full price (with 150%) duty if they like the brand. It, therefore, plays an important role in stimulating demand in the local economy,” he said.
ISWAI said the duty-free channel in India competes with that in Dubai, Singapore and London Heathrow. Volumes of scale help duty-free operators provide more attractive prices and range at their airports. “Reducing the allowance by half will reduce the importance of India duty free and make [it] less attractive than competing airports. Travellers will buy products at Dubai, Singapore and London before travelling to India. This will eventually kill the duty-free channel in India,” Mr. Singh said.
