Liquor stocks jump 3.5% as Karnataka mulls new tax
What's the story
Shares of liquor companies, including Tilaknagar Industries, Radico Khaitan, and United Breweries, surged up to 3.5% on Monday. The spike came after the Karnataka government released a draft proposal to amend its over six-decade-old alcohol taxation policy. The proposed change would see taxes based on actual alcohol content in beverages.
Policy details
Alcohol-in-beverage (AIB)-based excise duty structure
The draft amendment to the Karnataka Excise (Excise Duties and Fees) Rules, 1968, proposes an alcohol-in-beverage (AIB)-based excise duty structure. This would mean that higher alcohol content in Indian Made Liquor (IML) produced in Karnataka would attract a higher tax. The move will also reduce pricing slabs from the current 16.
Pricing impact
New tax regime expected to increase MRP of alcohol
The new tax regime, which will be implemented in phases, is expected to increase the maximum retail price (MRP) of alcohol in the first four excise slabs. However, it could also bring down prices for premium alcohol in higher slabs such as Scotch. Mild beer may also see lower taxes under this proposed system.
Market reaction
Brokerage firm Nuvama welcomes proposed policy
Brokerage firm Nuvama has welcomed the proposed policy, saying it is positive for both spirits and beer companies. They expect lower taxation to cool off prices of spirits for listed companies, driving volume growth. The firm also expects the UK-India free trade agreement (FTA) to kick in from Q2, further aiding margins for liquor companies.
Consumption patterns
Proposed shift aims to simplify the current tax structure
Karnataka is one of the largest states for liquor consumption in India. It currently has one of the highest alcohol tax regimes in the country, with multiple pricing slabs attracting additional excise duties. The proposed shift to an AIB-based system is aimed at simplifying this structure while aligning taxes more closely with alcohol strength.