India scraps ACD only to make Fine Wines more Expensive
Announcement last week by the government to remove additional customs duties (ACD) will result in a drop of 20-35% in the retail price of low end wines, beer and liquor, but will result in an increase in the cost of premium wines. This is a classic example of 'The Indian Paradox'.
The anomaly has arisen because the government, while eliminating additional duty under pressure from EU and the US, hiked the basic duties from 100 % to 150% (maximum allowed by the WTO agreement). ACD on the low end wines ( CIF lower than $25 a case) was earlier 75%, while on the high end wines (CIF higher than $40 a case) it was 20%. This segment will be hit negatively as the impact due to elimination of ACD is not as much as the increase in basic duty.
There is a consensus that the lower end wines will benefit the most, of course. The retail price of these wines will come down on average by 25-30%, bringing them much closer to the price of domestic wines. This will be a cause of concern for the Indian producers.
Expectedly, the domestic producers are unhappy. Rajeev Samant, MD and CEO of Sula Vineyards, expresses his anguish, 'Wine producers in the EU, because of the common agriculture programme, are heavily subsidised. We are not. We still need some protection from the cheaper wine imports.'
Yet, he is sympathetic to the case of premium wines. 'We should not put the duty that we do on expensive wines. There is no point putting a 150 per cent duty on a wine that costs $50 in the first place. What we would like to see happen is the entire ad valorem system that we currently have now, be replaced with a flat duty of say Rs 250 a bottle ($6). The cheaper wines become more expensive while the expensive wines became much cheaper," he adds.
A majority of overseas producers making quality wines have been banking on the scrapping of ACD to make their prices affordable to people who cannot order their wine in the 5-star hotels which import wine at zero duty but mark up to ridiculously high levels. Incidentally, there has been no change in the policy of duty free imports.
The customs duty on Grey Goose vodka may have come down by over 30% from Rs.1300 to 900 ($22). Absolute vodka has dropped from Rs. 435 to 195 ($$4.8), and the Johnny Walker Black label may pay lower duty from Rs.1060 to 780 ($$19). Beer will become cheaper – Paulaner will pay a duty of Rs. 24 ($.59) instead of Rs.44 ($1.07), but the premium wines will become even more expensive than before.
For instance, Laurent Perrier champagne will see an increase of customs duty from Rs.1224 to Rs.1383. Similarly, the premium Burgundy brand Joseph Drouhin will see a jump of Rs.180 per bottle in the existing duty of Nuits St. Georges, while the Chambolle Musigny will become costlier by over Rs.250.
And we are not even considering the possible increase in local excise duties by the states; the government has left the chapter open for them. Says Kapil Grover, MD of Grover Vineyards, 'What prevents Maharashtra from increasing the state duties on imported wines? After all, they already charge unfair duties of 150% on the assessable value of our wines as out- of- state wines.' Grover Vineyards is in Bangalore and Maharashtra considers it an 'import' and charges this duty on the manufacturing cost.
No wonder US has accepted the 'duty reduction' with guard optimism and EU is even less excited. While they must rue the day when WTO agreed to the outer limit of 150% for wines, they would hopefully, not rest till the issue of states charging extra duties is resolved.
Meanwhile, it has been a clear victory for the international beer and liquor producers. The producers of low end wines will also see the market opening for them, especially since the state governments are gradually allowing sale of wines in supermarkets.
The quality producers will have to wait for yet another time – or continue with their efforts to woo the duty free market of hotels, restaurants and airports.
