India: Beer prices up on taxes

Beer-makers are busy printing new retail prices on fresh stocks thanks to a hike in excise duty. The end result: a bottle of beer will now cost at least Rs 13 more. While the state excise department maintains that the increase in levy is only Rs 3 per litre, brewers blame the anomalous duty structure that has a multiplier effect when the bottle reaches the shop shelf, the Times of India reported on April 24.

"There is a gross anomaly in the duty structure," states Shekhar Ramamurthy, who heads the sales and marketing of the Bangalore-based UB group. "We don't have anything against the government increasing its revenue, but it should understand that companies and the trade have to have enough margins. The amendment squeezes our margins."

UB has already jacked up the price of its best-selling Kingfisher beer-a 650-ml bottle of the lager that used to cost Rs 52 will now cost Rs 65.An excise department circular of April 13 says that the duty on mild beer has been increased to Rs 15 per bulk litre or 100% of the manufacturing cost, whichever is higher.

Previously, it was Rs 12 per bulk litre or 75% of the manufacturing cost. On the face of it, this should result in a hike of only about Rs 1-2 per bottle. But producers say the devil lies in the details.

The increase in the multiple, that is 75% to 100%, ultimately jacks up the levy to one-third of the price. For example, earlier, if the manufacturing cost was Rs 10, the excise duty was Rs 7.50 or three-fourths of the cost, and the margins and other levies such as octroi added up to another Rs 12.5, bringing up the MRP to Rs 30 per bottle.

Now, if the production cost is Rs 10, the duty will be the same amount or Rs 10. Other levies such as octroi, local sales tax and margins will add on to the cost, increasing the price the customer finally pays.It means the duty is one-third of the price against the earlier one-fourth of the MRP, according to Ramamurthy, who is also vice-president of the All-India Brewers' Association.

"We had met excise officials and explained the anomaly to them. But they didn't seem to be sympathetic," he said, adding "While one will pay 29% duty for strong beer, it will be 33% for mild beer." Maharashtra consumes about 160 lakh 12-bottle cases of beer every year. Roughly half of this is lager beer. Mumbaikars account for 40% of beer sales in the state.

"This will encourage beer drinkers to switch to hard liquor, which will become significantly cheaper than mild beer," says Randeep Singh, owner of Shah Wines near Crawford Market. According to Singh, a bottle of Foster's beer will now cost around Rs 68 and Royal Challenge will cost approximately Rs 64.

Even occasional beer drinkers like Sharad Kulkarni say they will think twice before reaching out for that pint of lager. "The prices are already on the high side.The government should encourage beer drinking instead of hard liquor," he says. The retail beer trade will also be hard hit by the hike. "The hike will affect sales in the summer," says Sham Matai, vice-president of Maharashtra wine merchants' association.

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