Everything you need to know about the hype around liquor tax

The third phase of the nationwide lockdown due to the Coronavirus pandemic brought in some relief to Indian citizens with lockdown relaxations. One of the most significant relaxations during this period, and one that created a lot of excitement, was the reopening of stores that sold alcohol.

Liquor stores, after the announcement of the relaxation, witnessed queues in kilometres on the first day of relaxation where consumers patiently waited their turn to buy their favourite spirits. Consumers who were unsure of when the lockdown measures would become strict again were seen hoarding on boxes, bottles and crates of wine, beer and other spirits. One of the cases that went viral over social media was that of a man in the state of Punjab who purchased over ₹75,000 worth of alcohol in just one purchase.

In a bid to reduce the crowding outside of liquor stores because consumers weren’t really maintaining any social distancing, the state Government of Delhi announced the implementation of a special Corona tax on the purchase of alcohol and spirits. Purchasing alcohol would now require consumers to shell out a whopping 70% Corona tax on MRP.

Why does the sale of liquor matter to State Governments?
Manufacture and sale of liquor is one of the major sources of revenue for States and the reopening of liquor stores was an excellent opportunity for revenue generation, especially since States have been struggling to fill their treasuries.

Since the sale of liquor does not fall under the purview of the Goods and Services Tax (GST), each state has different taxes implemented on the sale of alcohol except for the states of Gujarat and Bhiar, where liquor sale is prohibited. Liquor contributes a considerable amount to the exchequers of all states and Union Territories so states generally levy excise duty on manufacture and sale of liquor. Some states even levy value added tax (Tamil Nadu) and special duty (Uttar Pradesh), special fees on imported foreign liquor, transport fees, label & brand registration charges etc.

What kind of taxes and duties are levied by States and Union Territories on the sale of liquor?

• Excise duty
• Value added tax
• Special duty
• Special fees on imported foreign liquor
• Transport fees
• Label registration charges
• Brand registration charges

Earnings so far
In FY20, the states earned a total Rs 1.75 lakh crore from excise and the sale of liquor accounted for 10-12% of the overall revenue. Let’s break this down further -

On an average, 29 states and the union territories of Delhi and Puducherry collected about ₹12,500 crore per month from excise on liquor in FY 2018-19 and rose to ₹15,000 crore per month in 2019-20. Before the pandemic and consequent lockdown, this amount was projected to cross ₹15,000 crore per month in the current financial year - that would account to a share of 12% to 14% of the monthly revenue of the states.

Other States follow suit
Because liquor sales lead to a major chunk of state revenue After Delhi, Andhra Pradesh and West Bengal raised the duty on alcohol citing the Covid crisis and implemented a Corona tax of 75% and 30% respectively. The states of Haryana and Rajasthan hinted on following suit.

States are already struggling because of delayed GST compensation from the Centre and are currently running short of funds because of the lengthy disruption in economic activity caused by the novel Coronavirus. The relaxation in lockdown and reopening of liquor stores gave them a sliver of hope to make the most of this opportunity and generate some if not nil revenue.