Beer drinkers could end up paying higher rates for their favourite beverage as the Karnataka government is readying to increase the excise duty on “strong beer”, even as it is coming up with a new definition of “beer”.
If the taxation proposal moves through, this will be the third hike of beer prices in Karnataka in just over a year after the additional excise duty was first increased from 175% to 185% in July 2023, and again increased from 185% to 195% in February 2024. The first increase led to cost of beer going up by ₹10 to ₹15 per 650 ml bottle, the second rise led to ₹15 hike in bottle, industry data claimed.
Classification
Proposing classification of beer with 6.5% to 8% alcohol content from the current category of two to three, the excise duty calculated for it has been proposed to be increased by ₹20 per bulk litre. Also, a duty of ₹16 per bulk litre has been proposed on beer having alcohol content between 5% and 6.5%. On beer with less than 5% alcohol, the duty of ₹10 per bulk litre will remain the same. The FSSAI classifies “beer” as those below 5% and those between 5% to 8% in alcohol content.
Brewers claim that the cheapest beer that costs around ₹90 to ₹95 a bottle now will be about ₹140 a bottle if new rate kicks in, and Karnataka — known for beer culture where 11 active breweries function — would be among the costliest States for beer in the country. Incidentally, Karnataka is the third largest beer market in the country.
Finance Department sources confirmed the move and said the reclassification was meant for taxation purpose. Acknowledging that the cost of beer will increase, sources defended the new classification stating that the proposed duty hike is not too high.
“We are worried that if the excise duty is increased on beer with 6.5% to 8% alcohol content, nearly 90% of the beer sold in Karnataka will become expensive by around ₹15 per bottle as ₹20 per bulk litre is being proposed. This would be the third tax increase in one year on beer, which is something unheard of anywhere. We are also unclear about the reasoning behind this new classification,” said Vinod Giri, the Director General of Brewers Association of India. He said that this proposed tax increase on beer contrasts with IMFL where the Government has taken steps to reduce duty on premium products and hold on lower end IMFL, and there are fears of people moving from beer to IMFL.
Memorandum to govt.
In its memorandum to the Government, the Brewers Association has expressed fear that the beer volumes could fall from the current 480 to 490 lakh cases annually in the State to about 370 to 380 lakh cases annually, bringing down the estimated beer revenue from ₹5,850 crore- ₹5,950 crore to ₹5,450 crore - ₹5,550 crore due to increased excise duty.
Citing statistics of growth of beer that contributed to about 16% of total excise revenues in 2023-2024, up from 10% in 2021-2022, Mr. Giri said, “There is no need to derail the growth rate. Also, the industry sees this as being unfair as the State has rationalised IMFL rates, bringing down the cost of IMFL while increasing the price of beer.”
Subject to alcohol content
However, Finance Department sources argued that there was nothing wrong in taxing beer with higher alcohol content with higher excise duty. “The duty on beer with less than 5% alcohol content will remain the same. Our study has revealed that certain low cost beer has higher alcohol content though strictly beer is seen as a low alcoholic content in the West where alcohol content is typically 2% to 3%. More alcohol in the beer will attract higher duty.” The high alcohol content beer is also affecting the sale of lower end IMFL to a certain extent, sources added.
Published - September 14, 2024 12:43 pm IST
