Desperate for funds to fulfil guarantees, Karnataka govt mulling over hike in alcohol duty

The Karnataka government is trying to use the sale of spirits to generate at least 10 percent of the necessary income in order to raise resources to pay for its guaranteed schemes. The budget required for the five guarantee programmes is reported to be Rs 45,000 crore for the current fiscal year, according to chief minister Siddaramaiah, who also holds the finance responsibility.

The estimated yearly demand is Rs 60,000 crore. The chief minister is anticipated to increase the income objective from the sale of alcohol from the current Rs 35,000 crore to almost Rs 40,000 crore in his budget for 2023–34, which will be presented to the legislative assembly on July 7.

Raising excise tax on demerit goods like alcohol has long been a tried-and-true method of boosting income since the excise department has long been a milch cow for succeeding governments.

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In order to close the income shortfall brought on by the pandemic, the BS Yediyurappa administration increased additional excise duty (AED) twice in 2021–2022; in contrast, Basavaraj Bommai increased revenue projections by promoting consumer growth to Rs 27,000 crore.

The market responded positively, prompting Bommai to revise it to Rs 29,000 with the department ending up collecting Rs 32,000 crore. In its budget in February, the outgoing Bommai government had fixed the excise target for 2023-24 at Rs 35,000 crore.

Chief Minister Siddaramaiah is expected to raise it by about 11 percent. Presently, an average of 35 lakh cases of beer and 47 lakh cases of IML (8.6 litres each) are consumed each month.

Karnataka Wine Merchants Association President G Honnagiri Gowda said, "We have been given to understand that a hike in AED is on the cards." It is said the state is exploring hiking AED across 18 slabs of Indian made liquor by about Rs 5 while also revising duty on beer upwards.

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Presently, the lowest slab attracts AED Rs 179 per bulk litre (translates to Rs 55. 9 per 180ml bottle) and the highest slab attracts Rs 4,465 per bulk litre (Rs 1,200 per 180ml). The department levies 175 percent duty on a bottle of beer. The duty hike on beer is expected to be marginal.

The acute need for funds has also prompted discussions on old proposals such as issuing new licenses and lowering the minimum age from 21 years to 18 to buy liquor. Also, at present, there are 3,935 licensed (CL-2) wine shops.

In 2016, the then Siddaramaiah government had proposed to issue 1,725 more licences and allow the sale of cheap liquor (government controlled clean affordable drink in place of banned arrack for low-income groups).

Earlier, the Bommai government had proposed to lower the minimum age to buy liquor. Lowering the minimum age is expected to push up consumption but the government is wary of a possible social backlash and may only hike duty.

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