Karnataka’s new liquor policy
On April 20, the sudden rise in the shares of liquor companies in the stock market became a topic of discussion among investors. This rise in the shares of liquor companies has come after a decision of the Karnataka Government, in fact the Karnataka Government has implemented a new liquor policy in the state. The effect of which was seen on the shares of liquor companies and as soon as the market opened on Monday, a rise of up to 3% was recorded in the shares of Tilaknagar Industries, Radico Khaitan and United Breweries.
Tax now based on alcohol content
The state government has issued a draft notification of changes in the 60-year-old liquor tax policy. Under this, tax on liquor will now be imposed on the basis of its actual alcohol content (Alcohol in Beverage AIB). That means, the more alcohol there is in the liquor, the more tax will have to be paid.
New system and slabs will be reduced
The government is preparing to bring a simpler structure by reducing the existing 16 price slabs. After amendment in Karnataka Excise (Excise Duties and Fees) Rules, 1968, Karnataka can become the first state in the country to implement AIB based excise duty.
Who will it be affected by?
Under the new system, the price of cheaper liquor may increase, while the price of premium liquor such as Scotch may decrease. There is a possibility of reduction in tax on light beer. This change will be implemented in a phased manner.
Why beneficial for companies?
According to brokerage Nuvama, this policy is positive for spirits and beer companies. Due to lower taxes, prices of premium products may decrease, which is expected to increase sales. Additionally, the potential UK-India Free Trade Agreement may also benefit the margins of companies. The brokerage has given BUY rating on United Spirits, Allied Blenders and United Breweries.
Big market share in Karnataka
Tilaknagar Industries is the largest company in the Prestige and Above segment in Karnataka with about 39% share. At the same time, United Spirits’ brands McDowells No.1 and Royal Challenge also have a strong hold in the state. United Breweries is the largest beer company in the country.
Big change decided in liquor market
Karnataka is among those states of India where alcohol consumption is very high. At present, one of the highest tax rates in the country is applicable here, in which different excise duty is levied on different price categories. Experts believe that the new policy will not only simplify the tax system, but will also increase competition in the market and consumers can get better options.
