Karnataka keen to levy higher excise duty on ‘strong beer’ with higher alcohol content

Karnataka government plans to increase excise duty on strong beer, potentially raising prices and impacting beer market in the state.

Beer drinkers could end up paying higher rates for their favourite beverage as the Karnataka government is readying to increase the excise duty on “strong beer”, even as it is coming up with a new definition of “beer.”

If the taxation proposal moves through, this will be the third hike of beer prices in Karnataka in just over a year after the Additional Excise Duty was first increased from 175% to 185% in July 2023, and again increased from 185% to 195% in February 2024. The first increase of AED led to cost of beer increasing by ₹10 to ₹15 per 650 ml bottle, the second rise led to ₹15 increase in bottle, industry data claimed.

Proposing classification of beer with 6.5% to 8% alcohol content from the current category of two to three, the excise duty calculated for it has been proposed to be increased by ₹20 per bulk litre. Also, a duty of ₹16 per bulk litre has been proposed on beers having alcohol content between 5% and 6.5%. On beers with less than 5% alcohol, the duty of ₹ 10 per bulk litre will remain the same. The FSSAI classifies “beer” as those below 5% and those between 5% to 8% in alcohol content.

Brewers claim that the cheapest beer that costs around ₹90 to ₹95 a bottle now will be about ₹140 a bottle if new rate kicks in, and Karnataka - known for beer culture where 11 active breweries function - would be among the costliest states for beer in the country. Incidentally, Karnataka is the third largest beer market in the country.

Finance Department sources confirmed the move and said the reclassification was meant for taxation purpose. Acknowledging that the cost of beer will increase, sources defended the new classification stating that the proposed duty hike is not too high.

“We are worried that if the excise duty is increased on beer with 6.5% to 8% alcohol content, nearly 90% of the beer sold in Karnataka will become expensive by around ₹15 per bottle as ₹20 per bulk litre is being proposed. This would be the third tax increase in one year on beer, which is something unheard of anywhere. We are also unclear about the reasoning behind this new classification,” said Vinod Giri, the Director General of Brewers Association of India. He said that this proposed tax increase on beer contrasts with IMFL where the Government has taken steps to reduce duty on premium products and hold on lower end IMFL, and there are fears of people moving from beer to IMFL.

In its memorandum to the Government, the Brewers Association has expressed fear that the beer volumes could fall from the current 480 to 490 lakh cases annually in the State to about 370 to 380 lakh cases annually, bringing down the estimated beer revenue from ₹5,850 crore- ₹5,950 crore to ₹5,450 crore - ₹5,550 crore due to increased excise duty.