Liquor VAT: Maharashtra government raises tax by 5% for bars, restaurants

The Maharashtra government has raised the Value Added Tax (VAT) on liquor served in various establishments, causing a slight increase in prices, the Times of India reported. Specifically, the VAT for permit room liquor service has been hiked by 5 percent, resulting in a new total rate of 10 percent, as per a GR issued on October 20, it added.

Notably, the new VAT rate does not impact liquor services in star hotels, as they already have a higher VAT rate of 20 percent. 

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Concerns arise

Hoteliers have expressed concerns over the recent rise in excise license fees imposed by the state government, which has added to the overall cost of liquor for consumers, the report said. They are of the belief that this policy shift could have a significant impact at a time when states are competing to generate revenue and attract tourists.

They added that the rise in VAT for liquor consumed within bars may lead customers to seek more affordable alternatives. Among such alternatives include off-premise venues like building terraces, parks, beaches, parked vehicles, or street corners. This, in turn, could pose a challenge to law and order enforcement for the state administration, industry sources told the paper.

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The Maharashtra government has proposed allowing permit rooms to maintain stock for retail sale of liquor bottles or over-the-counter sales, a change that is expected to benefit bars in the industry, as per the report.

Experts' Opinion

Pradeep Shetty, president of Hotels and Restaurants of Western India (HRAWI) told TOI that the increase came as a surprise amid hike in yearly excise fees, adding that this would push prices in bars and restaurants. 

"We are in the age where states are competing with each realising the power of tourism in driving economies resulting in reduction of excise duties. Goa, Chandigarh and Haryana are few such examples," Shetty said. The HRAWIs members include thousands of hotels and high end restaurants.

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Sukesh Shetty, president of AHAR, believes the hike is not fair on restaurants. He claims there is “clear discrimination on wine shop sales and on-the-premise-consumption”. AHAR counts more than 15,000 bars, restaurants and premium hotels in the Mumbai Metropolitan Region (MMR) as its members.

"This will definitely affect the sales in our industry thereby directly affecting the employment, compared to retail sales. Restaurant industry employs 6 to 8 times more people per outlet than the retail industry," Sukesh Shetty said.