In what could be a buzzkill for tipplers, liquor prices may go up once GST (Goods and Services Tax) kicks in from July 1, 2017. Although alcohol for human consumption has been kept out of the purview of GST, the industry believes that the input costs are set to go up, bringing companies' margins under pressure. This may translate into the companies passing on the cost pressure to customers, say liquor industry representatives.
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So, irrespective of whether your poison is whiskey, gin, vodka, rum, beer or wine, your tipple will not just hit your senses, it may hit your pocket too if the booze makers manage to pass on the higher costs.
"There will be a 12-15 per cent increase in input cost after GST kicks in. There will be pressure on the margins and then we have to pass on the pressure to the customers down the line," Shobhan Roy, director general of All India Brewers Association (AIBA) said. AIBA is the industry body that represents beer businesses in the country with a member list that includes AB InBev, Carlsberg, Mohan Meakin, Molson Coors, SOM Distilleries and Breweries, United Breweries, and SABMiller India.
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Beer would be the worst hit, with a 15 per cent increase in input costs, Roy said, adding that the spirits industry that includes other forms of liquor will see their the costs shoot up by 12 per cent.
While glass bottles have been put in the 18 per cent tax bracket compared to 15-16 per cent earlier, molasses have been classified in the highest tax bracket of 28 per cent. Transport freight tax is set to increase to 5 per cent from 4.5 per cent, while service tax goes up to 18 per cent from 15 per cent.?
Pramod Krishna, director general of CIABC or the Confederation of Indian Alcoholic Beverage Companies which is the apex body of the wine and spirits industry in the country is hopeful that liquor companies and states can figure out an arrangement that ensures prices don't go up. "On certain items, it (costs) will go up but the real impact remains to be seen. We are working closely with the states because there is no mitigation from the Centre, states are likely to look at a mechanism of refund, rebate or reflective credit," Krishna said. CIABC members include United Spirits, Diageo India, Pernod Ricard, Radico Khaitan, Bacardi India, William Grant & Sons, Allied Blenders among others.
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United Spirits in a conference call with analysts a month back had said they would approach the state governments for price increases once GST kicks in. "Our initial assessment of GST suggests that while alcohol for human consumption is normally said ENA (extra neutral alcohol) is excluded from GST and many of you have pointed that out, but the fact is there have been additional tax on input materials and services, which will result in further taxes and would impact margins. We shall, of course, continue to work with the central government in terms of advocacy to minimise this impact and also approach the state governments for appropriate price increases," United Spirits executive director and chief financial officer (CFO) Sanjeev Churiwala said.
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The liquor industry had been lobbying hard to bring alcohol for human consumption under the GST fold and are disappointed to have been left out. Asked whether there is hope of alcohol for human consumption being brought under the GST regime in the future, CIABC's Krishna said, "Out of the question, not in our lifetime. It will require a constitutional amendment. Unless the states in the next two or three years realise the folly on their part and do something about it."