Union Budget 2019: Beer, rum, whisky likely to become more expensive as tax on alcohol may increase yet again

India's annual alcohol intake is steadily rising despite alcohol getting expensive every year. The sale of alcoholic beverages has increased 38% between 2010 and 2017, from 4.3 to 5.9 litres per adult per year, said researchers from TU Dresden in Germany. On the policy front, government has already come out with a roadmap to reduce the fiscal deficit to 3% of GDP by 20-20-21 and eliminate primary deficit. As per the medium-term fiscal policy cum fiscal policy strategy statement tabled in Parliament, the government is aiming to contain the fiscal deficit at 3.4 per cent in the current as well as next fiscal. The simplest way to achieve this target is to hike taxes on liquor further this year. Alcohol is one of the top three revenue sources for the government.

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Nirmala Sitharaman in her first Union Budget 2019 speech is expected to raise the liquor taxes. However, any increase in taxes will have an adverse effect on alcohol demand as liquor companies are sure to pass on the buck to customers. "In the past, there have been multiple instances where volumes have taken a beating owing to price hikes emanating from an increase in the tax rate," Abneesh Roy and Alok Shah, analysts at Edelweiss Securities Ltd wrote in a recent investor note.

At the moment, liquor is outside the ambit of goods and services tax (GST) as it requires a constitutional amendment to bring it under the new tax regime. Meanwhile, states are free to levy taxes on them. Maharashtra has already increased the excise duty on Indian-made foreign liquor by 20%, which will help the government to garner additional revenue of Rs 2,000-2,500 crore. Earlier, in 2018, states of Gujarat, Kerala and Karnataka had hiked excise duty on alcohol. Gujarat had tripled the excise duty on the liquor sold through the 58 permit shops in the state, Kerala had announced a hike of up to 210% and Karnataka announced an excise duty hike by 8% on liquor respectively.

Liquor might be outside the ambit of GST, the raw materials needed for its production falls under the GST. In the earlier Value Added Tax (VAT) regime, the raw materials were taxed at 12-15%, however, under GST, the raw materials will be taxed at 18%. Freight and transportation charges also attract higher GST compared to the taxes under the VAT regime. This has led to the rise in liquor prices Y-O-Y. Additionally, Niti Aayog has also sought a hike in the taxes on alcohol in its Strategy for New India @75' document.

Edited By: Udit Verma

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