Table of Contents
POINT TO NOTE
- The Delhi government announced a 70% hike in the price of liquor across categories in the capital, starting Tuesday.
- Delhi’s “special corona fee” on alcohol underlines the importance of liquor to the economy of the states.
WHAT HAPPENED
- As India entered the third phase of the nation-wide lockdown on May 4, many states wrecked financially by the 40 day lockdown allowed standalone liquor stores to reopen.
- Delhi, Uttar Pradesh, Maharashtra, Assam, Karnataka, Chhattisgarh and Rajasthan were among the states that allowed the sale of liquor either across or the state or in select zones, much to the delight of those who were in forced abstinence.
FINANCIAL PROBLEMS
- Strained sources of finances: There have been no new vehicle and property registrations since the lockdown began and also no sale of liquor. Petroleum sales have dropped by about half as commercial activity is at a standstill and vehicles and planes idle. Own tax revenues of the States have plunged by 80-90%, leaving their finances in the lurch.
- Welfare Burden increased on states: states have to spend more to ease the burden on the poor with direct cash transfers to the needy and on beefing up health infrastructure, apart from the expenses on testing, quarantining and treating of patients.
IMPORTANCE
- The importance of liquor to the economy of the states: Manufacture and sale of liquor is one of the major sources of their revenue, and the reopening comes at a time when the states have been struggling to fill their coffers amid the disruption on account of the lockdown.
HOW DO STATES EARN FROM LIQUOR?
- Contribution to state GDP: Liquor contributes a considerable amount to the exchequers of all states and Union Territories except Gujarat and Bihar, both of which have enforced prohibition.
- RBI report: RBI published a report in 2019 titled ‘State Finances: A Study of Budgets of 2019-20’.As per the report, state excise duty on alcohol accounts for around 10-15 per cent of Own Tax Revenue of a majority of states.
HOW DO STATES EARN FROM LIQUOR?
- Duties and taxes on liquor: States levy excise duty on manufacture and sale of liquor. Some states, for example Tamil Nadu, also impose VAT (value added tax). States also charge special fees on imported foreign liquor; transport fee; and label & brand registration charges. A few states, such as Uttar Pradesh, have imposed a “special duty on liquor” to collect funds for special purposes, such as maintenance of stray cattle.
HOW MUCH DO THE STATE GOVERNMENTS EARN FROM EXCISE ON LIQUOR?
- The RBI report shows that during 2019-20, the 29 states and the UTs of Delhi and Puducherry had budgeted a combined Rs 1,75,501.42 crore from state excise on liquor. This was 16% higher than the Rs 1,50,657.95 crore they had collected during 2018-19. Uttar Pradesh collected a monthly average amount of Rs 2,500 crore from liquor.
WHAT IS AN EXCISE TAX?
- An excise tax is a legislated tax on specific goods or services at purchase such as fuel, tobacco, and alcohol. Excise duty is levied on liquor and alcoholic products used for human consumption (if they are consumed for industrial purposes like antiseptics, they come under GST) by the State governments.
LIQUOR CONSUMPTION IN INDIA
- According to the Lancet study, alcohol consumption in India, between 2010 and 2017, increased by 38 per cent — from 4.3 to 5.9 litres per adult per year. Nearly 57 million (5.7 Crore) Indians are addicted to alcohol, according to a 2019 study by the All India Institute of Medical Sciences (Aiims).
LIQUOR CONSUMPTION IN INDIA
- According to a 2018 World Health Organization (WHO) report, excessive alcohol consumption kills around 260,000 in India every year.
Latest Burning Issues | Free PDF
WhatsApp