Curbs on duty-free alcohol, cigarettes may force shops to rework pacts with airports – here’s why

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Updated: January 29, 2020 7:54:01 PM

The commerce ministry, has, however, proposed to reduce it to one litre and prohibit cigarette sales completely as part of recommendations to the finance ministry ahead of the union Budget.

Liquor imports account for almost 50 per cent of the overall duty free sales of USD 450 million.Liquor imports account for almost 50 per cent of the overall duty free sales of USD 450 million.

Restricting sale of liquor and cigarettes at duty-free shops at Indian airports may force the retailers to renegotiate existing contracts with the aerodromes, an industry source said.

Liquor imports account for almost 50 per cent of the overall duty free sales of USD 450 million.

At present, an arriving international passenger is allowed to buy two litres of liquor and one carton of 100 cigarette sticks from duty-free shops.

The commerce ministry, has, however, proposed to reduce it to one litre and prohibit cigarette sales completely as part of recommendations to the finance ministry ahead of the union Budget.

“As much as 70 per cent of our business is arrival sales and the rest 30 per cent at departures. So, if the proposal is accepted, it will really impact the business going forward and we will have to renegotiate the lease contracts with the airport operators,” an industry source told PTI.

Mumbai airport alone earns about Rs 400 crore annually as rentals from duty-free operators, he said, adding that any dip in sales will reduce the topline and consequently the affordability to pay higher rentals.

DFS (duty free shops) sale is an important component of non-aeronautical revenue for airports. As per industry estimates, as much as 30 per cent of the non-aero revenue is used to cross-subsidise aeronautical charges, which, in turn, keeps the fares on the lower side.

Of the total DFS sales, arrival sales account for USD 315 million and within that, liquor sales stand at around USD 220 million, he said.

Airports in the UAE, UK, Japan, Russia, South Africa and Vietnam allow much higher alcohol sales compared to India, he said.

“The upside of this can be monumental because Indians already spend over Rs 7,000 crore at foreign duty-free stores at present,” the source added.

“On the contrary, an increase in free baggage allowance up to Rs 75,000 per passenger from Rs 50,000 at present, along with increase in the number of units of spirits, wine etc may result in additional revenue of around Rs 400 crore per year to the AAI,” the source added.

These measures could shift a lot of the DFS business at foreign airports to Indian aerodromes, he added.

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