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Centre pushes for uniform tax to steady liquor prices across India

Centre pushes for uniform tax to steady liquor prices across India
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First Published: Sun, Jun 01 2008. 10 21 PM IST

In the works: A liquor shop in Delhi. The food processing ministry wants the creation of a panel of state finance ministers, and the Union ministers of agriculture and commerce, to work with it on a u
In the works: A liquor shop in Delhi. The food processing ministry wants the creation of a panel of state finance ministers, and the Union ministers of agriculture and commerce, to work with it on a u
Updated: Sun, Jun 01 2008. 10 21 PM IST
Mumbai: The Union government, with some prodding from liquor lobbies, is considering a uniform tax on liquor across the country, which will result in products being sold at the same retail price anywhere in India.
That’s a significant development in a country where whisky tastes the same in Cudallore in Tamil Nadu or Panipat in Haryana, but is priced differently. That’s because of varying rates of sales tax and excise duty across states. Even the road map to the common goods and services tax (or GST) that the government has been talking about exempts liquor.
In the works: A liquor shop in Delhi. The food processing ministry wants the creation of a panel of state finance ministers, and the Union ministers of agriculture and commerce, to work with it on a uniform tax regime.
Earnings from local taxes on liquor account for a significant proportion of the inflow into state treasuries.
The ministry of food processing is pushing for the creation of a committee of state finance ministers, and the Central ministers for agriculture, food processing and commerce to work towards a uniform tax regime for liquor, say officials at the Confederation of Indian Alcoholic Beverage Companies, or CIABC, an industry body that represents the interests of both domestic and foreign liquor firms.
Mint could not immediately get a confirmation from the ministry on this development over the weekend. It is also not clear what sops or incentives will be demanded by the states that will lose money if they move to a uniform tax for liq-uor because their existing levies are at a much higher level.
However, in an effort to stamp out illegal inter-state smuggling of liquor, and make transactions easier for liquor firms—for instance, even their accounting software will need to deal with almost 30 different duty structures—India has been considering a uniform tax on liquor for some time.
“The Planning Commission of India is also looking at ways and means of introducing a single tax regime, as it was done in the case of value added tax, or VAT, to rationalize fees and duties levied on alcoholic beverages,” said Pramod Krishna, director general of CIABC, which helped the ministry of food processing draft a model excise policy based on a related study carried out by think tank National Council for Applied Economic Research.
The proposal will help the Rs45,000 crore by sales liquor industry (excluding country liquor) to adopt a uniform retail price for brands across the country. For instance, the prices of Johnnie Walker whisky or Old Monk rum in Maharashtra are higher than that they are in Punjab or Goa, but lower than in Kerala—a function of the taxes and excise duty structure in these states. This has caused illegal liquor trade across states and also enormous loss of revenue for the industry as well as the states.
CIABC chairman Vijay Rekhi, who is also the chief executive of India’s largest liquor firm United Spirits Ltd, said the varied “tax structure in the country has been one of the key hurdles that the sector faces on the way to a healthy growth.” He admitted that the body had been lobbying for a uniform rate for some time. But, another industry executive said convincing states about the merits of a uniform tax rate would be a challenge. “Since the taxes and duties on liquor are key components of revenue for states, it is not going to be an easy job for the Union government to find a solution,” added this executive who didn’t wish either himself or his company to be named.
Mint had reported in February that liquor firms were lobbying the Centre and states for a uniform tax regime.
Currently, state-level excise duties range between Rs25 and Rs500 per litre on Indian-made foreign liquor, or IMFL. The excise duty on wine ranges from Rs70 a litre to a high of 200% of the base price of the wine. Maharashtra imposes the highest duty of 200% of the declared cost of a bottle.
And, most states charge multiple taxes on liquor, which is an important source of revenue for them.
“A uniform and rational duty structure on low-alcohol drinks such as wine and beer will not only help companies sell their products at the same price across the country, but will also lower the prices of such products (in some states),” Alok Chandra of Gryphon Brands Inc., a Bangalore consultant that works with liquor firms, said in a February interview.
“Though the Union government had proposed such rationalization, a similar move from the state governments was awaited,” he added.
An executive at a liquor firm said more companies would be encouraged to enter the business if the tax regime were to be made uniform.
“A rational and uniform duty structure will definitely attract more serious players and will contribute tremendously to the overall growth and expansion of the wine market in the country,” said Abhay Kawedkar, business head at United Spirits.
In 2007, India removed a special additional import duty on foreign liquor, including wine, in keeping with its commitment to the World Trade Organization. This resulted in reduction of prices of imported liquor in India, but retail prices still continue to vary across states because of varying local tax regimes.
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First Published: Sun, Jun 01 2008. 10 21 PM IST