Karnataka govt ‘high’ on excise target, industry in no mood to say cheers

Beer industry fears tax revisions may drive consumers to higher-alcohol drinks

Stouts, pilsners and ales brewed in Karnataka feature in journalist Tim Hampson’s encyclopaedic work World Beer, which stands as a testimony to the thriving industry the state has around beer. 

But there is little to say cheers for brewers who are worried with the state government, which is eyeing higher excise revenues, hiking duty on beer continuously the past year with one more revision coming up next fiscal. 

There are also regulatory concerns - primarily on ease of doing business - which the government has promised to address only now. 

For the 2024-25 financial year, Karnataka has set an ambitious excise revenue target of Rs 38,525 crore. Excise targets are going up year after year. 

Karnataka is considered among India’s top beer markets. According to latest industry estimates, state consumes around 3.8 hectolitres of beer annually, roughly 11% of the national volume. 

The average beer typically has 4-8% alcohol and is made from barley, rice and wheat.

More revenue

Indian-made Liquor (IML), like rum & whisky, brings in more revenue compared to beer. But the share of beer in excise revenue has risen, from Rs 2,438 crore in 2020-21 to Rs 4,460 crore in 2022-23. Apparently, the strong growth in beer sales has prompted the government to look at this segment to mop up more revenue through taxation.

In July last year, CM Siddaramaiah hiked additional excise duty (AED) on IML by 20% and on beer from 175% to 185%. Again last month, the government effected an AED hike on beer, which hiked the price of each 650 ml bottle. 

Rationalising tax slabs 

In the upcoming 2024-25 fiscal, the government wants to rationalise and revise tax slabs on IML and beer. 

The beer industry fears that repeated increases in beer taxes could drive consumers, especially those in the 21-30 age cohort, towards higher-alcohol beverages. 

“The beer industry in Karnataka has witnessed strong double-digit growth in 2023 and despite this, it witnessed two consecutive tax hikes in last seven months,” a spokesperson for Belgium-headquartered AB InBev said. 

Regulatory challenges

If taxation is one issue, the sector is facing regulatory challenges. 

In September last year, at a round-table meeting attended by Netherlands Prime Minister Mark Rutte and Deputy CM K Shivakumar, Industries Minister M B Patil and IT/BT Minister Priyank Kharge, officials from the Dutch brewer Heineken asked the government to come up with a “fair & transparent regulatory regime” for promotion & growth of beer category in Karnataka. 

In December the same year, excise department asked Heineken-controlled United Breweries, AB InBev, Carlsberg and B9 Beverages (Bira) to stop third shift operations (10 pm-6 am) at their breweries in Mysuru. The decision was rolled back after backlash from within the government. 

Government promises reforms

Additional chief secretary (finance) L K Atheeq said the government is working on ease-of-doing-business reforms, which will include automating licence renewals. “The required software is being developed,” he said. 

“An expert committee is rewriting the excise rules. There are 15 different sets of rules, which will be brought down to three broad sets. The reforms will be embedded in the amended rules,” Atheeq explained.

“We’ll be ready to roll out the reforms in the next couple of months,” he added. 

Atheeq said “there could be some truth” in the beer industry’s concern that higher taxes would drive consumers towards hard liquor.

“Going forward, any increase in excise duty will be carefully considered. We’ll not recklessly increase duties,”  he said. 

In the coming fiscal, Atheeq said the government wants to rationalise tax slabs, which might involve an increase in duties on certain slabs, particularly in the premium segment.

“Premium liquor in Karnataka is very expensive relative to neighbouring states,” he pointed out.