Maharashtra Budget proposes to hike VAT on liquor by up to 15%

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Alcohol prices in  Maharashtra may go up to 10-15% after the state government announced a hike in value-added tax (VAT) in its budget tabled on March 8, Business Standard reported.

The proposed VAT hike—a move to breach the government’s revenue shortfalls—could well be initiated in the coming week. This will force liquor companies to act upon the new guidelines which might upset customers.

Tax revenue from alcohol is estimated at Rs 700 crore per day and Rs 2.5 lakh crore annually. On several occasions, state governments have increased the taxes on liquor to make up for their revenue shortfalls.

“In Maharashtra, taxes have been increased in spite of volumes dropping for the past few years. In West Bengal, the new price structure initiated by the state increases the price gap between cheap and mid-priced better quality alcoholic beverages. All of this will impact the liquor market,” Amrit Kiran Singh, chairman of International Spirits and Wines Association of India (ISWAI), was quoted in the report.

The proposed VAT structure will fetch the Maharashtra government approximately Rs 1,000 crore which includes an excise duty hike of 220% or Rs 187/litre and VAT increase of 5% in two different sections of VAT Act, according to experts.

As per the latest report from Health and Family Welfare Statistics (HFWS), in Maharashtra, 39.5% men (between the age of 15-54) and 4.1% women consume alcohol. Punjab has 37.4% men consuming liquor, while only 1.6% women fall in line. Assam has the highest alcohol consumption rate with 59.4% men and 26.3% women drinkers.

Interestingly, Gujarat and Bihar, both liquor-banned states recorded 53.4% and 36% men consuming alcohol, respectively.

States like Karnataka (alcohol consumption: 25% by men, 0.1% by women) and Delhi (alcohol consumption: 39.5% by men, 2.4% by women) have not increased excise duty on liquor recently but they do sense the pressure to hike taxation in order to increase the government’s revenue, especially against the backdrop of the coronavirus pandemic which suddenly increased the state expenditure in the past few months.

Meanwhile, the Confederation of Indian Alcoholic Beverage Companies (CIABC) suggested state governments to review their tax hikes and make sure market growth rates are not impacted adversely due to the same.