India: Beer makers rue tax hike in Karnataka

Karnataka, housing India’s beer capital Bengaluru, has levied two consecutive additional excise duty (AED) hikes on beer over the past seven months. The levy is resulting in consumers shifting to high strength alcohol beverages, industry players rue. Beers makers are demanding state to reconsider the taxation levied on the premium beer segment that contributes more excise revenue to the state, The Hindu Business Line reported on March 5.

The state has recently levied a 10 per cent increase in additional excise duty (AED), raising it from 185 - 195 per cent AED for the beer industry. This adjustment translates to a rise of ₹8-10 per 650 ml bottle of beer. This continuous escalation of taxes to the already elevated cost of beers in Karnataka, is nudging them to cheaper high strength alcohol beverage options, argues the industry.

“The beer industry in Karnataka has witnessed strong double-digit growth in 2023 and despite this, the beer industry witnessed two consecutive tax hikes in the last seven months. Beer in Karnataka is one of the most expensive in the country, shifting consumers towards cheaper high strength alcohol beverage alternatives,” said AB InBev India spokesperson.

The tax levy’s contribution to Karnataka’s revenue has raised from ₹3250 crore in 2019 to ₹4460 crores in 2023. Beer makers are urging the state to look at differentiation between value and premium beer segments, considering the potential long-term impact on the state revenue.

“Rationalizing premium liquor excise duty structure is a welcome move however, we urge the policymakers in the state to reconsider the taxation levied on the premium beer segment that significantly contributes more excise revenue to the state. By capitalising on the demand for premium beer and implementing favorable taxation policies, Karnataka can foster a thriving beer culture that benefits both consumers and the state economy,” AB InBev India spokesperson further noted.

The value beer segment has risen to around 40 per cent in 2023 whereas premium beer segments have declined due to frequent tax revisions. Industry players note that the beer industry growth is largely led by value segment beer, preventing consumers from premiumisation and limiting excise revenues from premium brands.

Given beer is a low alcohol beverage for consumers, a distinct tax structure to promote responsible consumption, differentiating it from hard spirits or Indian Made Foreign Liquor (IMFL), is a fair consideration to be made, they say.

Shobhan Roy, Director General of All India Brewers Association (AIBA) notes, “The beer industry has been singled out for taxation increases twice in a year which is unheard of in any state. There is no rationale that already the category is being taxed at a rate much higher than that of domestic spirits. The category which was growing at 15-16 per cent has come down to 6 per cent since the levy, and is expected to droop further. The industry urges the government to allow the category to grow.”

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