Liquor across the country could soon cost the same if the government acts upon the recommendations of the Planning Commission.
The commission’s model policy, which requires the concurrence of states, has recommended streamlining taxes on liquor and suggests that duties be levied purely on the value of the liquor (or ad valorem) as opposed to the current tax regime which levies a mix of ad valorem and specific duties.
The current duty structure also varies widely across states as a result of which prices of liquor are different across the country.
While the move would mean an initial revenue loss, the commission believes this can be more than made up by the decline in the incidence of smuggling and consequent revenue loss, said officials who were associated with drafting the model policy but did not wish to be identified.
They declined to reveal the proposed rates.
For states such as Kerala, Punjab, Tamil Nadu and Uttar Pradesh, which are expected to lose much more than other states once the uniform tax is implemented, the commission suggests Central assistance by way of compensation for the first three years.
The extent of the compensation will decide whether the states go along with this proposal. Kerala’s finance minister T.M. Thomas Issac said the state government would not accept any attempts on the part of the Union government to dictate how liquor was to be taxed. “They cannot do this. We have not been informed of any such move. If this proposal was to be put before us, we will oppose it,” he added.
Liquor is a state subject and, hence, there are inter-state disparities in tax structure. For instance, while sales tax in some states is as high as 40-50%, excise duty can range between Rs25 and Rs500 per litre on Indian-made foreign liquor (IMFL) and licence fee, for manufacturers, and wholesale and retail distributors, can range between Rs1 lakh and Rs30 lakh per manufacturer.
Policy cheer: The Planning Commission has recommended lower taxes for wine and beer. (Madhu Kapparath / Mint )
Most states charge multiple taxes on liquor, which is an important source of revenue. The tax rates are high in Chandigarh, Punjab, Andhra Pradesh, Uttar Pradesh, Tamil Nadu and Kerala.
The total tax revenue generated through sale of liquor was Rs28,000 crore in 2004-05, the last year for which data is available.
According to the Planning Commission, the disparities in tax rates make inter-state commerce difficult and also lead to tax evasion, illicit distillation, smuggling and unhealthy competition.
The commission’s recommendations are based on a report of the joint working group comprising state excise commissioners and Central ministries. It has also recommended lower taxes for wine and beer.
Estimates by the ministry of food processing industries put the size of spurious and non-duty paid liquor at as high as five million cases for Indian-made foreign liquor alone.
The Planning Commission’s recommendations come in the wake of the draft policy on goods and services tax (GST) that has kept liquor out of its ambit.
GST is expected to be rolled out in 2010. A committee, comprising senior bureaucrats from the Centre and states, on GST in November 2007 recommended that a tax over and above GST could be levied by states on tobacco, petroleum and liquor, as these three account for a significant proportion of tax collected by the states.
The committee has suggested that GST have two components: a Central tax and a single uniform state tax across the country.
Experts believe the proposed rationalization in taxes on liquor would be consistent with the move to GST.
“Even while liquor is a state subject, the joint working committee on GST has suggested a uniform tax structure on liquor be devised where input tax credit is given for inputs used such as barley or grape. However, liquor being a demerit good (the consumption of which is considered unhealthy), there is an additional provision that the committee has suggested. This allows states to levy additional excise duty without giving input tax credit. This would also protect revenue interest of states,” said Anita Rastogi, principal consultant, PricewaterhouseCoopers.
(K.P. Narayana Kumar contributed to this story.)