Beer makers urge Karnataka govt to withdraw draft notifications, fear 10-20% price hike

The Beer Association of India (BAI) has urged the Karnataka government to withdraw draft notifications, which proposed a hike in duty through alcohol content-based classification in beer, saying that on average this move would lead to a price increase of 10-20 per cent in mainstream and premium segments.

The draft notification proposes to double the excise duty on strong beer to Rs 20 per bulk litre, increase the minimum billing price for beer in the state to Rs 300 per case and Additional Excise Duty (AED) to 195 per cent of the billing price or Rs 130 per bulk litre whichever is higher.

The industry body, in a letter to Chief Minister Siddaramaiah, has also asked to withdraw the proposal asking beer manufacturers to declare the sugar content in the beer on the bottle’s label and capping the use of sugar to 25 per cent of the weight of malt of grain.

BAI, which represents leading beer makers United Breweries, ABInBev and Carlsberg, said these draft notifications are not in the interest of any of the stakeholders and may result in high prices for consumers, impact Ease of Doing Business in the state and may lead to lower tax revenues as sales would be impacted.

“The increase proposed in the draft notification would increase the prices by 10-20 per cent in mainstream and premium segments. At the same time, it would also make beer unaffordable to the masses with the proposed 35 per cent increase in taxes in this segment,” said BAI, whose members account for 85 per cent of the beer sold in India.

Prices of beer have been increased twice in the last 12 months and a third increase in such a short time would be detrimental to industry volume as well as the revenues for the State from the Beer category.

“Due to the impact on MRP, we estimate the tax revenues from the beer category may actually fall to the tune of Rs 400 crore revenue from this proposal,” said BAI.

Apart from tax revenue loss, it would put over Rs 5,000 crore investment in 10 breweries in the state at risk due to low commercial viability and make future investment into capacity expansion doubtful.

Moreover, high prices and reduced volumes will hit sales, lower manufacturing activity, and impact trade as well as the hospitality industry, said BAI, adding the proposed changes vide the draft notification are not in the interest of any of the stakeholders.

Over the display of the percentage of Malt and Sugar content on the label of beer bottles, BAI said it will mislead and confuse consumers, add undue compliance burden on beer manufacturers, force breweries to reveal confidential information, and reduce the ease of doing business in the state.

“We therefore request you to withdraw the draft notifications or amend them,” said BAI in a letter written by its Director-General Vinod Giri.

The draft amendment proposes to reclassify beer into three subclasses and apply differential excise duty for each of them, as against a uniform rate on all beer. The government proposed a rate of duty of Rs 10, Rs 16 and Rs 20 per bulk litre based on alcohol – below 5 per cent, 5 to 6.5 per cent and 6.5 to 8 per cent respectively.

“We request to either withdraw it or revise this amendment to increase the minimum declared price levels to Rs 400 per case for bottled beers, and review and rationalize the minimum AED of 130/ BL which otherwise will lead to big jump in the MRP,” it said.

Karnataka is a very important market for the beer industry and it is recognised for its strong beer culture which has been made possible by supportive and progressive policies by the Government.

“It is the third largest beer market in India, and with supportive policies, could become the biggest in the coming years. However, we are concerned that some proposed changes could hinder the growth of the industry, diminish the state’s investment appeal, or drive future investments elsewhere,” it said.