Tax on Liquor: Coronavirus fee: Cash-strapped states rush to raise taxes on alcohol


Bengaluru | Mumbai: After Delhi, Andhra Pradesh and West Bengal raised the duty on alcohol citing the Covid crisis, liquor companies fear other states will follow suit, further damaging the category already impacted by the lockdown and a cutback in discretionary spends.

On Monday, Delhi allowed liquor shops to reopen, resulting in long queues of tipplers. But this was accompanied by the state levying a ‘Special Corona Fee’ of 70%.

The overcrowding outside liquor shops has spooked authorities. Late on Tuesday night, civic authorities in Mumbai said these shops will not be allowed to open in the city from Wednesday.

Meanwhile, Andhra and West Bengal raised taxes by 75% and 30%, respectively. Haryana and Rajasthan have hinted at similar hikes, said industry officials.

Soon after the tax-hike announcements, the share prices of top three listed liquor firms — United Spirits, United Breweries and Radico Khaitan — fell 6-8%.

“Such a steep hike in duty will be a dampener. It will hit volumes. There is an apprehension that other states, too, will raise duties,” said Shekhar Ramamurthy, MD of United Breweries.


Liquor Sales Major Revenue Source

In India, several state governments either control liquor retailing or wholesale distribution or both, and taxes form a major source of their revenues. In FY20, the states earned a total Rs 1.75 lakh crore from excise, and liquor accounted for 10-12% of the overall revenue. More than 50% of the retail price goes to state and central governments by way of VAT and excise duty.

“We expected tax hikes, as state coffers are empty and governments are in dire need of funds. However, a 70% hike (in Delhi) in taxation is too steep,” said Deepak Roy, executive vice chairman of Allied Blenders & Distillers, and chairman of the Confederation of Indian Alcoholic Beverage Companies.

The spirits and beer segment saw subdued sales growth of 3% last calendar year, hurt by high excise duties in some states and regulatory changes. Companies said growth could decline further due to higher price tags.

“The premium segment, which was driving sales for the past four years, will erode. How long will the government milk the cow? Revenues will turn negative at this rate of year-on-year increase in taxes on liquor. This contagion of a corona tax will spread to other states, and we fear a minimum of 30% increase by other governments,” said Rakshit Jagdale, managing director of Amrut Distilleries, the single malt maker.

Amar Sinha, COO of Radico Khaitan, warned that the government may lose out on a significant chunk of revenue as prices go up due to higher levies. “Liquor companies are also facing cost inflation, and it is time the government takes a relook at the viability of manufacturers and affordability along with the tax hikes,” he said.


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