Beer is the 3rd largest drink in the world after water and tea, India is, ranked at the bottom of the barrel among the world’s top 30 beer markets.
The beer market in India was estimated to be more than ₹200 billion in 2012. It is expected to be ₹430 billion by 2017. The growing market is attributed to a growing middle class & youth with disposable income. Beer with alcohol content in the 8% range accounted for 83% of the total beer sales in the year 2012.
Beer alcohol content at 5% to 8% is even lower than wine which is 12% and IMFL which is at 42.5%. And yet in India, Beer is taxed indiscriminately . In terms of absolute alcohol content, it is taxed more than Spirits. No wonder youth and others, shift to spirits considering cost of intoxication.
In developing and developed countries the Quantum of beer is over 80% of the alcobev category compared to India where it is only 50% compared to IMFL and if one includes country liquor , beer will be 35%. This is the precise reason for youth, when achieving the legal age of consumption move straight to hard liquor.
Beer taxation is indiscriminate and does not depict value to the consumer. Beer if taxed rationally, positioned more liberally, viewed more positively will wean people away from hard liquor. This will therefore do immense good to society at large .
In spite of high level of taxation, the revenue from beer is only 15% of the gross alcohol revenue. therefore, there is a case to rationalize beer taxes.
- High cost: Beer is currently targeted at the higher middle and middle-income demographics in India. It is estimated that of the top 30 global beer markets, India has the lowest affordability of beer relative to average GDP. India is the only BRIC country where a beer is more expensive than a burger. Furthermore, on a unit/alcohol content basis, beer is more expensive than spirits, in India.
- Availability: There is one licensed outlet per 18,000 Indians, compared with one per 300 Chinese. The states of Tamil Nadu, Andhra Pradesh, Karnataka and Maharashtra will drive 55% of this industry volume. The lower tax rate for beer can be the catalyst for long term positive bias on the sector.
- Stringent regulations: The growth projections always depend on government policies in different states. Since price elasticity in the market is high, every time the governments increase the tax on beer, sales are instantly affected. Liquor is taxed by state governments hence the tax, mainly excise duty, varies from state to state ranging from a low 15% to 43% (in Maharashtra). Along with restrictions on pricing, governments also control the distribution of alcoholic drinks in the market. Excise duty per litre of beer is the highest globally, and beer is taxed higher than spirits. In addition, a ban on advertising alcohol makes premiumization and innovation a challenge.