United Spirits, the largest liquor company in the country, has announced that the prices of its brands will witness a surge of 14-17% in Karnataka. This decision comes in response to the state government’s recent announcement to impose a 20% hike in additional excise duty (AED) on Indian-made liquor (IML) starting from August.
Despite having the highest tax rate on liquor in the country, Karnataka remains the largest alcohol-consuming state in India, accounting for 18% of the nation’s total sales with an impressive annual sales figure of 68.4 million cases.
“This was not a welcome tax increase. The tax rates in Karnataka are already much higher. A 20% tax increase, in effect means that MRP of our brands will likely go up in the range of 14 to 17%. So, they become even more expensive in the state than they were already,” Hina Nagarajan, managing director at USL, told investors. “It’s too early to call out the impact on demand but our experience suggests there is generally a negative impact when prices go up.”
During the past few quarters, there has been a challenging situation for mass-priced segments, mainly due to inflation, even with a notable consumer shift towards premium products. For USL (United Spirits Limited), the popular segment experienced a 12% decline in volume growth. However, despite this, the company managed to achieve an overall 6% volume expansion.
In India, the liquor industry faces the influence of several state governments, which either control liquor retailing or wholesale distribution, or sometimes both. Taxes play a significant role in contributing to the state and central government revenues. Approximately more than 50% of the retail price of liquor goes towards VAT (Value Added Tax) and excise duty. For instance, the excise revenue generated from liquor sales in Karnataka reached around INR 30,000 crore in the fiscal year 2022-23.
