State unveils excise duty on alcohol

Beer prices to be increased in Karnataka once again, fourth increase in less than 2 years

The Karnataka state government, which recently increased prices on domestic liquors, is now preparing to raise excise duties on beer, causing concern among tipplers. In August, the government issued a draft notification inviting objections to the proposed excise duty hike on beer. Feedback was collected from various stakeholders, including beer manufacturers, liquor shop owners, and consumers. Following this review, the government has decided to move forward with the increase. As a result of this excise duty hike, beer prices are anticipated to rise significantly. This would mark the fourth price increase in just a year and a half, placing a financial strain on beer lovers.

Steady rise in prices
Karnataka ranks as the third-largest beer market in India. Beer sales surged by 45% this year compared to the last three years. However, the revenue generated from beer sales is significantly less than that from domestic liquors, prompting the government to periodically raise the Additional Excise Duty (AED) on beer to bolster its revenue.

Sources said that in July 2023, the AED was increased from 175% to 185%, resulting in a Rs 10 to Rs 15 hike for a 650 ml bottle of beer. Manufacturers subsequently raised their prices by at least Rs 10 per bottle to cover increasing production costs. Effective February 1, 2024, the AED will be further increased from 185% to 195%, leading to an additional 10% rise in prices.

Market reactions
In anticipation of the price hike, beer manufacturers have started to limit the supply of premium brands to avoid re-labelling once prices increase, causing shortages in the market. Bars, restaurants, and wholesalers are stockpiling beer, leading to increased demand at the state’s Beverage Corporation. Liquor vendors are hoping for higher profits once the government enforces the price hike. An official said, “While the excise duty hike on beer may lead to increased revenue, frequent price hikes are adversely affecting the business.”

Three-tier system for beer
Currently, beer is sold under a single tier in the state, but future regulations will categorise beer similar to domestic liquors. The new system will introduce three tiers based on alcohol content: beers with up to 5% alcohol, those between 5% and 6.5% alcohol, and those with 6.5% to 8% alcohol. According to sources from the excise department, excise duties on these three categories will be increased by Rs 10, Rs 16, and Rs 20 per litre, respectively.