Alcohol taxation statistics are woefully inadequate and complex as revenue from liquor goes to many accounts in many departments, such as Excise and Commercial Taxes. Sales tax, Excise duty, import fee and education cess are some of the various forms of alcohol revenue.
Governments often project excise revenue alone, but sales tax is much more than Excise. In States such as Maharashtra, Goa, Punjab, Haryana, Chandigarh, WB and the entire North East, where the wholesale and retail liquor business is under government control, alcohol revenue is relatively easy to reckon. In Andhra Pradesh, Orissa, Bihar, Chhattisgarh, Rajasthan, Uttarakhand, Uttar Pradesh, Karnataka and Bihar, governments run the wholesale business, leaving retail to private players. Maharashtra’s liquor business is in private hands.
States can endeavor to allow low alcoholic beverages like beer in GST as a starting point and extra collate to other categories when successfully implemented.
The alcohol industry has been emphasising the need for inclusion of alcohol under the GST ambit. The implementation of GST will result in benefits in terms of a simpler and more efficient tax system and higher economic growth.
A well-designed GST would lead to substantial rationalization, modernization and simplification of the current indirect tax regime. It would bring harmonization of the taxes at the centre and state levels and facilitate a more effective enforcement of the tax system.
However, to have these advantages, the key requirement is that GST should apply to all goods and services comprehensively, with some degree of harmonization in the application of taxes at the centre and state levels. The Constitutional (Amendment) Bill for GST proposes to exclude ‘alcohol for human consumption’ from the GST purview. This is a matter of serious concern for the alcohol beverage industry.
Exclusion of any industry, including alcohol, would seriously compromise the fundamental objectives of GST, viz., to remove the existing distortions and complexities, improve tax compliance, increase tax revenues and have a higher economic growth.
It will lead to an increase in the production costs through denial of credit for the GST incurred on its inputs and services acquired for use in production and distribution. It would also give rise to additional complexities in the tax system thereby increasing the cost of doing business and adversely impact the investments, growth and employment.We understand that the decision to exclude alcohol from GST purview is guided by the fear that its inclusion in the GST base would result in loss of revenue and/or loss of fiscal autonomy of the individual states. These concerns are misplaced and can easily be addressed.
Exclusion, if at all, should not be under the Constitution: Even if for some reason the governments are not in a position to rationalize the GST design and include alcohol in its purview, at a minimum, the alcohol sector should be removed from the negative list under the Constitution. Application of GST to alcohol may be deferred till the time the Centre and the States arrive at a consensus on a suitable arrangement. Till then the exclusion, if at all considered necessary, should be in the GST legislation and not in the Constitution.