Karnataka's Licence-Fee Hike Puts Craft Distilleries On The Rocks

Small distilleries in Karnataka are unhappy with the hike in annual licence fees, calling increased costs unsustainable.

The industry says this will hamper the startups innovating the category. Some, like Huli Spirits, are even considering moving operations to states with lower fees.

The Karnataka government is set to increase the annual licence fee for distilleries in the state by 50%, effective July 1. This is a reduced rate from an earlier proposal of an 100% increase, which saw objections from the industry players. Ideally, the request from the industry was to bring down the rate to 20–25%. The Karnataka Liquor Sellers' Association members had requested for the same from the government.

"While I was paying around Rs 60 lakh for licence fee, now I have to pay Rs 90 lakh, this is a huge spike, which will shoot up the costs, while my sales remain the same," said Aruna Urs, founder of Huli Spirits, a craft rum-maker in Karnataka. "Some bigger players could absorb this, but a craft maker like me will have to take the hit."

Urs notes that even after making a request to the government, he found no solution. He is also mulling moving operations to neighbouring states, as the fees there are much lower at around Rs 20 lakh.

Small distilleries are requesting for the government to consider creating different slabs of distilleries, where the smaller players are charged at a lower rate.

"In addition to the large players like Diageo, Carlsberg and others, there are various startups in the state operating," Vinod Giri, director general of the Brewers Association of India, said. "This will hamper the smaller players innovating in the category."

Giri explained that the beer industry faced three hikes in excise and additional excise duty within two years, followed by a licence-fee increase. Taken together, these repeated tax hikes show that the industry was being taxed excessively, leading to beer sales contracting.

"The state was known to be investor friendly, progressive and is the beer capital of India, but now the direction of state's policy is regressive in nature and the ease of doing business is declining," Giri claimed. "It is quite likely that the increase in license fee will be passed on to consumers as the pricing compliance in the state is not the best."