Manufacturers of Indian Made Foreign Liquor (IMFL) in Maharashtra will have to fork out around Rs 488 crore as additional taxes this year as a new excise formula is set to come into force from January 15.
The formula would, for the first time, replace the Value Added Tax (VAT) system on liquor by an ad valorem duty on the manufacturing cost.
The new tax structure, which was scheduled to be operational from January 1 this year, had been postponed twice by the state government in the past fortnight owing to stiff resistance by makers of the premium brands of liquor.
The manufacturers argue that the incremental price impact of the new tax system on the upper end of the market is unjustified. Also, they fear that other state governments may take the cue from Maharashtra if the system succeeds.
The government, however, hopes to mobilise an additional revenue of Rs 400 crore with the imposition of the policy. Besides, it justifies the move on the grounds that it ensures progressive taxation, that is, higher value brands would pay higher duty.
Further, the government feels the consumers will be protected since the policy insists that the maximum retail price be printed on the products.
However, IMFL-makers say that since the ad valorem tax is on the manufacturing cost, the real effect of the tax would actually fall only on the regular segments and upwards, leaving the lower end of the market virtually untouched.
This is because the manufacturing cost of the medium and cheap brands of liquor are substantially lower than that of the top brands.
In the new policy, the ad valorem duty on IMFL is proposed to be 200 per cent and 100 per cent on beer and country liquor.
Sources said this would hardly have an impact on the prices of country liquor while resulting in only a marginal increase in the beer prices. The retail prices on IMFL, however, are likely to go up by over 50 per cent.
The IMFL manufacturers say that the policy would also encourage cross-border smuggling and bring bootleggers back into business. Also, it may induce a good size of consumers to switch to the cheaper range of products.
