 "Liquor prices in Maharashtra likely to rise 10-15% after tax hike")
Alcohol prices in Maharashtra may increase by 10-15 per cent after the state government proposed a hike in value-added tax (VAT) on liquor in its Budget tabled on Monday.
Industry veterans such as Deepak Roy, executive vice-chairman at Allied Blenders and Distillers, say the VAT hike could be initiated this week itself, forcing players to act, as the state looks to breach the shortfall in its revenue.
Tax revenue from alcohol is estimated at Rs 700 crore per day or Rs 2.5 trillion annually, according to industry executives. State governments are known to tweak alcohol taxation from time to time to deal with revenue shortfall.
Amrit Kiran Singh, chairman of International Spirits and Wines Association of India (ISWAI), whose members include top liquor players such as Diageo and Pernod Ricard, says alcohol taxation by Maharashtra and West Bengal have been a concern.
“In Maharashtra, taxes have been increased in spite of volumes dropping for the past few years. In West Bengal, the new price structure initiated by the state increases the price gap between cheap and mid-priced better quality alcoholic beverages. All of this will impact the liquor market,” Singh said.
While an excise duty hike of 220 per cent or Rs 187 per litre has been proposed on branded country liquor in Maharashtra, the VAT increase of 5 per cent proposed in two different sections of the Value Added Tax Act by the state is expected to fetch Rs 1,000 crore, higher than the excise duty hike on country liquor, experts tracking the market said.
The VAT increase will also significantly impact the Indian-made foreign liquor (IMFL) market, since volumes in the segment have fallen sharply in FY21, a year disrupted by the Covid-19 pandemic. Maharashtra contributes 12-13 per cent in terms of sales volume to the IMFL market.
Estimates suggest that the overall IMFL market has declined by around 15-20 per cent in FY21 owing to the lockdown, frequent curfews, and curbs on consumption in bars, pubs, and restaurants for much of the financial year.
Though Karnataka has not increased excise duty on liquor in its state Budget, experts said the pressure to hike taxation remains on the local government. The same goes for Delhi, which removed its 70 per cent Covid cess in June, but announced that it was overhauling its excise policy recently. This is likely to have an impact on alcohol prices, some experts said, though Singh of ISWAI believes it may not be the case.
States such as Rajasthan, on the other hand, have frequently hiked excise duty on liquor, pushing down sales of IMFL by around 28 per cent in FY21. Hooch tragedies have also increased in the state as people have migrated to spurious liquor to counter the inflationary trend in IMFL prices.
Punjab, meanwhile, has not increased excise duty on liquor. Instead, it has increased its sales quota and expects to collect a revenue of Rs 7,000 crore in FY22. This is 40 per cent more than the revenue in the current financial year from alcohol.
The Confederation of Indian Alcoholic Beverage Companies (CIABC) has asked state governments to re-look their tax hikes so that market growth rates are not hit adversely.
For now, that doesn’t seem to be resonating among state governments at all.
