How license fee hikes by Karnataka's Congress govt are driving distillers to neighbouring states

The Print

5 hours ago

'Is this @INCIndia idea of ease of doing business……' Urs posted late Monday, tagging Lok Sabha Leader of the Opposition Rahul Gandhi and Karnataka Chief Minister Siddaramaiah.
The offer came less than 24 hours after Urs posted on X, threatening to move out of Karnataka, which increased the distillery licence fee by a whopping 50 percent.
Bengaluru: Aruna Urs, co-founder of Mysuru-based craft rum distiller, Huli, was driving for work Tuesday when he received a call from a friend delivering an unusual message on behalf of Andhra Pradesh minister Nara Lokesh. Lokesh extended an offer of a 'tailor-made excise policy' and red carpet welcome to encourage Urs to relocate his craft rum micro-distillery to the neighbouring state, according to a source from Lokesh's office.
It had been more than a month since Urs wrote to the Karnataka government, asking it to reconsider its original 100 percent license fee increase that was later reduced by half. He received no response.
The state government is literally forcing #huli to move out of Mysuru to Goa or Maharashtra. The annual distillery licensee fee has been increased by 50%! Is this @INCIndia idea of ease of doing business @RahulGandhi @siddaramaiah? pic.twitter.com/nZh2BAi6H8
— Aruna Urs (@Arunaurs) June 23, 2025
'For one year of licence fees in Karnataka, I can operate for nearly five years in Goa,' Urs told ThePrint. The upstart company, which pays Rs 63.10 lakh for various licence fees, will now have to pay Rs 90 lakh to do business in Karnataka. 'This is pure extortion,' Urs said.
He compared this to Goa, where he would pay around Rs 20 lakh for the first year and then Rs 17 lakh for each subsequent year.
Karnataka's decision to hike the licence fee has opened the door for the neighbouring states to position themselves as more investor-friendly. Each time professionals have complained, whether it's about language or Bengaluru's crumbling infrastructure, neighbouring states like Andhra Pradesh and Telangana have reacted promptly and invited companies or individuals with the promise of a better business environment.
Since the rollout of Goods and Services Tax, states rely on excise duties, stamp duty and motor vehicle taxes, as well as other levies, to raise revenues as revenue inflows from the Prime Minister Narendra Modi-led Union government continue to dry up.
For Karnataka, excise, in particular, has been a steady revenue generator. Successive governments have increased excise rates of liquor and beer at every given opportunity to shore up revenues to make up for revenue shortfalls, said industry representatives.
'In less than 24 months, the additional excise duty on the beer industry has been increased three times and excise duty has been increased once in Karnataka. So, four tax increases in less than 24 months in Karnataka. As a result, prices of a bottle (of beer) have gone up from around Rs 160 to Rs 200,' Vinod Giri, director general of The Brewers Association of India (BAI), told ThePrint.
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'Open or shut, excise dept forces targets'
In the past three financial years, Karnataka has raised its excise targets by over Rs 10,000 crore combined, according to the state economic survey. In 2022-23, the government of Karnataka met its target, earning Rs 29,920.36 crore from the sale of liquor and beer.
The target for the ongoing fiscal year is Rs 40,000 crore.
But the state's revenue from excise in 2024-25 stood at Rs 36,500 crore compared with the target of Rs 38,525 crore. Trends from at least the past five fiscal years show that revenues and targets from excise on liquor and beer have seen an upward trend.
Retailers, hoteliers and other liquor vendors in Bengaluru said high targets only add to pressure from the department to sell more, even though sales have slumped as outlets are forced to shut for elections and processions.
'For even small MLC elections, which have less than 10,000-15,000 voters in some distant place, they make us close our business. Even when a major procession passes through our establishments, we have been forced to close our hotel,' said a Bengaluru-based hotelier, requesting anonymity. 'But this does not mean that we get some concession on the minimum stock purchase. Open or shut, we are expected to buy a quota of liquor every month from the government.'
The hotelier added that only in Karnataka does the excise department force closure of restaurants that serve liquor and not just the beverage section, as is the norm in other states.
Industry members underlined excise is a heavily regulated sector in Karnataka but several business owners allege the excise department routinely demands bribes during renewals or every month. They alleged that excise inspectors and other officials even land up at hotels to eat and drink for free. At least two people said it was 'harassment' to all those in the liquor business or even remotely connected to the sector.
Industry leaders have often cited Karnataka's complex and time-consuming permit process, as well as allegations of widespread corruption, as key deterrents to investing in the state's liquor sector. In November last year, the state wine merchants association accused the excise department of demanding bribes between Rs 30-70 lakh by the state excise minister for allotment of CL-7 licences.
'Govt earns more than the producer'
Karnataka has among the highest excise duties, according to multiple people aware of the developments. But, so far, this has not stopped investments in the state, which has 11 major brewers, the highest of all states in the country. Urs said he is a small brewer who needs government support and should not be clubbed with larger players.
He added that for every bottle of Huli, its signature jaggery-based rum, the company earns a total revenue of Rs 630, while the government taxes amount to Rs 1,537.50. This takes the price per 750 ml bottle to Rs 2,167. Urs said that the Rs 630 his company earns per bottle has to cover operational expenses – including salaries, electricity bills, raw materials and other production costs, leaving little room for profit.
India is one of the fastest-growing alcoholic beverage markets. In 2023, the market size was about $55 billion. It is expected to increase at a CAGR of seven per cent to $73 billion in 2027.
However, Giri said Karnataka's liquor industry is under threat since it has become harder to sell investment pitches where operational costs are going up and sales are coming down. There is a misconception that a hike in prices does not affect consumption at all, he added.
He said that the 'tendency to overtax' will lead to the industry and government turning into 'net losers'.
'Karnataka was always an investment-friendly state and is the only state that has 11 breweries, the highest in the country. And there were more plans for investments. But when the sales start contracting, what do we tell the companies and why would they invest?' said Giri.
The government, however, stood by its decision to increase prices and operating costs for distilleries. Ritesh Kumar Singh, principal secretary in the Karnataka finance department, defended the government's decision, saying that while underlying inflationary pressures affect all products, liquor is relatively insulated. Singh told ThePrint that an increase in taxes actually helps producers increase prices of end products in a tightly controlled market where prices cannot be raised or dropped by market forces.
'The original plan was to double it (licence fee) since it hadn't been increased for the last eight years. But there was a lot of hue and cry and people with many stating that it was too high, then we settled for a 50 percent increase,' he said.
Adding, 'And if you distribute this 50 percent increase over eight years and do an annual CAGR, it is 5 percent. Why are people complaining?'
(Edited by Sugita Katyal)
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