Liquor tax hike faces backlash in Maharashtra; United Spirits stock lifts on industry pushback

United Spirits' shares have risen nearly 3% today amid developments surrounding the proposed hike in excise duty on Indian-made foreign liquor (IMFL) in Maharashtra. The Confederation of Indian Alcoholic Beverage Companies (CIABC), the industry body representing major players in the sector, has written to the state government requesting a rollback of the tax hike.

The Maharashtra cabinet recently approved a sharp increase in excise duties on IMFL, country liquor, and imported alcohol. CIABC estimates that this could lead to a retail price rise of up to 85%, which could significantly impact consumer demand.

“This is sentimentally positive for companies like United Spirits,” said Abneesh Roy, executive director, Nuvama Institutional Equities. “CIABC has urged the Maharashtra government to reconsider the duty hike. However, ultimately it is the state government's call, so we will have to wait and watch.”

Roy also pointed out that while the news of the hike has been reported in the media for over five days, the Maharashtra government is yet to issue a formal notification. “This may imply there could be some rethink on such a sharp increase,” he added.

The CIABC has warned that a steep rise in taxes could lead to unintended consequences, including smuggling and the sale of illegal alcohol from neighbouring states where duties are lower. The industry body also expects a decline in volumes and possible downtrading by consumers to cheaper alternatives.

Roy echoed similar concerns: “A sharp hike like this will impact volumes and could lead to downtrading in spirits. Also, smuggling of alcohol from less-taxed neighbouring states may increase, which can partly negate the purpose of this tax increase.”

In its representation to the government, CIABC has called for stakeholder consultations before implementing the decision. It emphasised the importance of a moderate tax regime to ensure stable demand and prevent a shift to the unorganised segment.

While there is no formal rollback yet, the absence of a notification and the mounting pressure from industry players have raised speculation of a possible policy review.