Liquor sale is vital for viability of State economy

Telangana Liquor sale highest in 2021
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Telangana: Liquor sale highest in 2021

Highlights

In lockdown why is only liquor sale allowed? The reason behind the sale of liquor is that are inflows of excise duty and levies such as sales tax,...

In lockdown why is only liquor sale allowed? The reason behind the sale of liquor is that are inflows of excise duty and levies such as sales tax, gallonage fee, and license fee. On top of it, some states even charge VAT on the level of production and distribution.

In fact, the state government gets as much as Rs 85 via taxes out of every Rs 100 spent by a buyer on liquor. The sale of alcohol has always been a strong source of inflow for states—one of the reasons why the Centre never brought it under the purview of GST.

Despite that, the cost of liquor has increased largely due to two factors. First, the VAT on raw materials used to produce alcohol is as high as 18 per cent. Second, the states want to fill their coffers after their revenues were battered by several months of the Covid-19 lockdown.

While alcoholic beverages do not come under the purview of GST, states have found a turnaround. They levy GST on transportation and freight charges of liquor. So, what charges do states levy? What is the state-wise breakdown of taxes?

Most states levy either VAT or excise duty or both. Excise duty is a tax levied to discourage the consumption of a product. It is calculated on a per-unit basis. Meaning, if you buy 1 litre of liquor, you pay a fixed excise duty of Rs 15. Value-added Tax is charged in the proportion of the product. If a bottle costs Rs 100, and the state levies 10 per cent VAT, the price rises to Rs 110.

In the Budget 2021, FM proposed an agriculture infrastructure cess of 100 percent on all alcoholic beverages, applicable from February 2. However, according to experts, this new cess will not increase alcohol prices. That's because 100 percent agri infra cess is cancelled by a 100 percent reduction in customs duty.

The 29 states/UTs in India approach liquor taxation differently. For instance, Gujarat has banned its citizens from consuming liquor since 1961. But outsiders with special licenses can still buy. Puducherry, on the other hand, earns most of its revenue from alcohol trading.

Bihar has prohibited alcohol consumption entirely, meaning the state's revenue from liquor consumption is nil. Its neighbour, Uttar Pradesh, earns the most excise duty on liquor. The state does not levy VAT but a special duty on liquor, collecting funds for particular purposes.

While Punjab decided to keep its excise duty unchanged in the current fiscal, it has increased its sales quota and expects to collect a revenue of Rs 7,000 crore in the next fiscal. As much as 40 per cent more than the revenue in the current fiscal.

Andhra Pradesh, Telangana, Kerala, Karnataka, and Tamil Nadu consume as much as 45 percent of the liquor sold in the country. Subsequently, these states earn some 15 per cent of their revenue from the excise duty, a Crisil report showed in May 2020.

Andhra Pradesh had announced prohibition in 2019, but it sells alcoholic beverages with a prohibition tax. For Kerala, the tax on liquor is its single largest revenue source. The state also has the highest liquor sales tax – almost 250 per cent.

The state controls the liquor market with its agency, Kerala State Beverages Corporation. In response to the pent-up demand, it increased the price of liquor by 7 per cent this month.

Nationally, Maharashtra charges the highest rate but draws only a portion of its revenue from its sales. Tamil Nadu, like Kerala, earn a large part of its revenue from the sale of liquor. It has imposed VAT, excise duty, and a special fee on foreign liquor.

Delhi is planning a move to increase the excise duty to increase liquor prices by as much as 50 percent. Goa has the lowest liquor tax rate in the country, a step the state took to promote tourism.

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