| The Karnataka budget has introduced major change in the excise duty and distribution policy for arrack which is likely to be politically significant as corruption leading to duty evasion is deeply entrenched.
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| Finance minister S Siddaramaiah is known for his firmness and vested interests with political links till now benefiting from evasion of duty on arrack are likely to hit back over time by seeking to destabilise both the minister and the government.
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| The aim of the new policy is to end government monopoly in manufacturing and make pricing a function of market forces rather than government fiat, finance ministry officials said.
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| Official figures of arrack consumption, rental paid and duty collected have all stagnated over the years. There was a complete disjunct between consumption and recorded sales.
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| To end this massive difference in price between duty paid and non-duty paid arrack, the excise duty on arrack is being slashed from Rs 20 to Rs 2 per bulk litre. This will remove the incentive for avoiding duty payment. The government will only fix the maximum retail price which is being notified at Rs 95 per bulk litre.
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| The government has declared that supply of arrack and rectified spirit is not its business. Till now only two state-owned enterprises were manufacturing duty paid arrack from whom contractors had to secure their supplies.
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| The resultant gap between demand and supply was being met by unauthorised manufacturing of arrack . Now any authorised distiller can manufacture arrack and the excise duty is going to be levied at the point of manufacture.
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| The government has made the Karnataka State Beverages Corporation the canalising agency for arrack.
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| For its part, the government will auction the contracts for retailing the arrack and the concessions will be awarded on the basis of the ‘rental’ quoted. The competition will be in quoting a higher rental and recovering it through higher sales, presumably by offering a discount. |
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