Govt must focus on reducing taxes on liquor to check smuggling

India is one of the fastest growing alcoholic beverages markets globally with an estimated market size of $52.5 billion (about Rs3.9 lakh crore), the Indian Council for Research on International Economic Relations (ICRIER) said.

The market is expected to grow at a CAGR of 6.8 per cent till 2023, it said. The industry contributes to around 15 lakh jobs. ICRIER said over 70 per cent of the growth in alcoholic beverages consumption in India in the next decade will be driven by the lower middle and upper middle-income groups, and there is a growing trend towards product premiumisation.

The share of the upper-middle income group in alcohol consumption has increased steadily from 7 per cent to 21 per cent and is expected to increase to 44 per cent by 2030. The government should focus on phased tariff and other duties reduction and Indian companies should be encouraged to export to improve the trade balance. Duty reduction for intermediate products can enhance value addition in India and boost domestic manufacturing potential.

This can help India in bringing in more investments into the sector, encourage innovation, improve ease of doing business, increase domestic manufacturing capabilities and enhance exports, said ICRIER.

As alcohol is a state subject and not under the gambit of GST various governments increase taxes to appease the voters by saying it is to curb consumption. The truth is they would like to increase their coffers but inadvertently they lose revenues in the process.

The Maharashtra government's move to reduce taxes by 50 per cent is a step in the right direction. The excise duty on imported scotch whiskey has been brought down from 300 per cent to 150 per cent of the manufacturing cost. However this is only for imported spirits bottled in origin and not those scotch whiskies bottled in India. The reduction in excise duty will apply to rum, brandy, vodka, and gin. However, beer and wine are exempted from the latest order. Prices are expected to reduce by 35-40 per cent.

The Maharashtra government earns revenue of about Rs100 crore from the sale of imported scotch annually. The revenue is expected to increase to Rs250 crore as the sale is expected to go up from one lakh bottles to 2.5 lakh bottles, according to Excise officials. It will arrest smuggling and bootlegging of imported scotch whiskey, the Maharashtra government has slashed excise duty on imported foreign liquor by 50 per cent to bring its price on par with that in other states. Maharashtra has among the highest excise duty on imported whisky as compared to its neighbouring states. Goa has the lowest liquor tax rate in the country in order to promote tourism.