Andhra makes liquor cheaper for common people

The Andhra Pradesh government has reduced excise and value-added tax (VAT) on cheap liquor in a move expected to raise revenue for the exchequer.

The cheapest categories of Indian made liquor (IML) sold in the state will now be available at retail prices of Rs 35 and Rs 45, a reduction of Rs 20 per 180 ml bottle.

This is expected to boost sales, which have been growing at 4 per cent. The rise in sales could bring an additional Rs 2,000-3,000 crore revenue to the government, according to industry estimates

Officials said Andhra Pradesh ranked the lowest in per capita consumption of liquor among southern states, providing scope for an increase in sales.
 

The two categories of liquor on which taxes were lowered come with a basic price of Rs 350 and Rs 400 per case (9 bottles of 1,000 ml or 12 bottles of 750 ml). These categories of liquor account for about 60 per cent of total consumption in the state. Last year Andhra Pradesh registered sales of 28.8 million cases of IML.

According to the revised tax structure, these two categories will be levied 140 per cent VAT in place of 190 per cent. Excise duty of Rs 30 per proof litre on the Rs 350 category and Rs 40 per proof litre on the Rs 400 category will be levied in place of Rs 47 per proof litre or 87 per cent of basic price, whichever is higher.

"These two categories were clubbed into the Rs 450 basic price and above categories in the recent past by imposing a uniform tax. Now the government has not only separated these two categories from the rest, it has also increased levies on the categories that sit on top of them. Because of this, a brand that was available at Rs 75 for a 180 ml bottle will now cost Rs 85 and an Rs 85 bottle will now cost Rs 90. It is an attempt to encourage consumers to buy the Rs 350 and Rs 400 basic price categories now," D Venkateshwar Rao, secretary of the Andhra Pradesh Wine Dealers' Association and president of the Telangana Wine Dealers' Association, told Business Standard.

As the retail prices of the third and the fourth categories (up to Rs 450 basic price and up to Rs 525 basic price) goes up while the lowest two categories become cheaper, consumers will shift to the cheaper categories, according to Rao. "Now they can buy more liquor, contributing to a rise in consumption," he said.

The move follows the Telangana government's recent attempt at launching a Rs 30 per 180 ml liquor, which was perceived as a potential threat to the liquor revenue in the border districts of Andhra Pradesh.

Liquor emerged as the second biggest source of the undivided Andhra Pradesh's own tax revenue in the 1990s, ever since the state started looking for money to spend on welfare programmes like the Rs 2 a kg rice scheme launched by NT Rama Rao.

The move also comes at a time VAT receipts from liquor sales are running neck and neck with those from petroleum products. The state has increased taxes on petrol and diesel to make up for revenue loss on account of the decline in crude oil prices. As the Telangana government has kept prices of petroleum products a little low, liquor and minerals remain the two focus areas for the Andhra Pradesh government to mop up revenue.

In the current financial year up to September 2015, petroleum products and liquor contributed VAT of Rs 4,197.62 crore and Rs 3,876.81 crore, respectively. In 2014-15 total government revenue from liquor sales stood at Rs 11,480 crore, which included Rs 7,290 crore VAT, Rs 1,820 crore licence fees and Rs 1,679 crore excise duty. This was against Rs 35,126.6 crore estimated tax receipts from sales of all commodities.

When added with excise revenue, liquor has contributed Rs 5,796.47 crore to the state exchequer in the current year up to September 2015 against Rs 4,197.62 crore by petroleum products, making it the single biggest source of revenue for the Andhra Pradesh government.

The Andhra Pradesh government had set a budget target of Rs 39,814.92 crore by way of taxes on commodities in the current fiscal year. Liquor remains the only dominant source of consumption-based tax apart from petroleum products in the state.

"By reducing taxes the government has created two new categories of cheap liquor without compromising on existing liquor revenues. These two categories may generate sales of a million cases per month from the present 1-2 lakh cases. I think this could be a way forward for the Telangana government, which has been battling the menace of chemical-mixed toddy," said Niranjan Lal Agarwal, president of the Andhra Pradesh Wineries and Distilleries Association.

The state government has also reduced taxes on locally made wine by bringing down VAT to 100 per cent from 150 per cent and excise duty to 5 per cent of the basic price from 15-28 per cent in an attempt to encourage manufacturing and consumption of wine. It has also brought down taxes on beer in the below Rs 200 basic price category as sales had declined 12.38 per cent after a recent tax hike. The government has marginally raised the excise duty on beer, wine and liquor in higher basic price categories.