Rush for liquor bottles outside wine shops has underlined the fact about strong demand and the buyers willingness to pay astronomical price to quench their thirst.
That’s ideal situation for government to raise tax on liquor while encouraging it to consider similar hike on cigarettes and other luxury items falling under sin category.
Cigarettes maker, luxury car makers, tobacco companies will feel the pressure from higher taxes or cess on their revenues as well as earnings potential. ITC, United Spirit, Maruti Suzuki, Tata Motors, M&M, other will feel the pressure.
The Delhi government on Monday, a day after allowing the sale of liquor in the city, said that it will impose a ‘Special Corona Fee’ on alcohol, amounting to an increase of 70% on MRP. The new rates will be imposed from Tuesday morning.
Delhi’s neighbouring state Haryana also plans to levy a special covid cess. The special cess could create arbitrage opportunity with other states like Uttar Pradesh which are yet to levy such a cess.
India has been under a lockdown since 25 March and stores selling liquor and tobacco have also been shut since then. Income from liquor cess is a key source of income for states. The Delhi government’s move may affect the state’s liquor sales once inter-state movement is allowed.
State governments had lobbied hard to keep liquor and auto fuels like petrol and diesel out of Goods and Service Tax (GST) so that it becomes easier for them to boost revenue collections when needed.
Utility of goods has been a key criteria guiding indirect tax policies of central and state governments. Thus, polluting fossil fuels like petrol and diesel, cars with high displacement engines considered a luxury and sin goods like liquor and cancer causing tobacco have attracted high taxes. Sports utility vehicles, tobacco and aerated drinks are on the highest GST slab of 28 %, which also attract a cess. Liquor, which is outside GST, is subjected to state excise duties heavily.
The liquor industry contributes about Rs 2.5 lakh crore a year to state governments by way of excise duty and in some states as value added tax. Bulk of their tax outgo goes to state governments as liquor is a state subject.
Meanwhile, petrol price in the national capital was hiked by Rs 1.67 per litre on Tuesday and diesel by a Rs 7.10 per litre after the Delhi government raised local sales tax or value-added tax (VAT) on the two fuels. Petrol in Delhi now costs Rs 71.26 a litre as against Rs 69.59 previously. Diesel price has been hiked to Rs 69.39 per litre from Rs 62.29. This follows Delhi government’s decision to raise VAT on petrol to 30% from 27%, previously. In case of diesel, VAT has been almost doubled to 30% from 16.75%.
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