Financial Daily from THE HINDU group of publications
Saturday, Apr 29, 2006
Industry & Economy
States - Karnataka
`Proposed excise hike on liquor to hit Karnataka revenues'
New policy on IMFL will boost the sales of arrack.
If duties are raised, end consumer price will increase substantially.
Discontinuing wholesale licences will lead to cartelisation.
Proposed duty hike will impact brands at every price point.
Bangalore , April 28
A liquor industry body has said that Karnataka Government's move to change the excise duty and additional excise duty slabs will result in revenue losses for the State.
The Association of Distillers, Brewers & Vintners of India has petitioned to the State Government that if the duties are changed, the end consumer price will grow substantially.
The Director-General of the association, Mr Sushil Haksar, has said that a steep increase in consumer price will allow illegal operators to resume supply of non-duty paid stocks.
"This will lead to a major fall in the legitimate Government revenues," Mr Haksar said.
He also said that the new policy on Indian-made foreign liquor and beer will in fact boost the sales of arrack, a brew which has been banned in all other southern States.
As arrack is part of the unorganised sector, it is extremely difficult to regulate and capture its full revenue potential, the petition to the Chief Minister, Mr H.D. Kumaraswamy, said.
"IT, biotech, wine, pub culture and arrack cannot go together," Mr Haksar said. Hence, it was necessary to ban sale of arrack, he said.
In case the duties are revised, at a basic price of Rs 399 per case of 180 ml bottle (full tax paid), end consumer price will be Rs 41 per bottle in Karnataka compared with Rs 15 per bottle in Goa. This huge price differential will increase clandestine trade, the petition said.
Unfair trade practices
The petition pointed out that the cost of expanding and strengthening Karnataka State Beverages Corporation Ltd (KSBCL) to replace the wholesale licensees will also not be a viable proposition. Also, discontinuing the wholesale licences can lead to retailers forming cartels leading to unfair trade practices, it said.
Result in degrowth
The existing excise policy had in fact resulted in keeping the final consumer price at a minimum level as well as at an affordable level. But the proposed duties will in fact impact the brands at every price point and is estimated to push up the consumer prices by around 15 per cent.
"The current growth of 25 per cent will crash to degrowth," Mr Haksar said. He said the cost of putting up additional infrastructure by KSBCL will be more expensive than the additional 5 per cent margin to the corporation. He said progressive reduction in duties would, in fact, accelerate the growth and stimulate growth in Government revenues.
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