Covid-19 cess dampens spirits; consumers turn to cheap liquor brands

Liquor is one of the biggest sources of revenue for state governments, but their income may fall: Survey

Hit by the steep price increase in wine, beer and spirits due to Covid cess, consumers in many states are downgrading to lower-priced alcoholic beverages, according to a LocalCircles survey.

The survey found that the volumes of liquor sales in the states are falling as consumers say they are buying less than their usual quantity due to increased MRP. This phenomenon might lead to reduced tax collections for the states.

The majority of consumers say they will order liquor through ecommerce apps if their state government allows.

The survey found that excise data in multiple states shows decline in sales volumes in May and June 2020, when compared with 2019.

Liquor is one of the biggest sources of revenue for state governments. As the Covid-19 pandemic forced majority of businesses to shut due to the lockdown and reduced the tax collections, various state Government decided to impose a Covid surcharge/cess on liquor in their state in a bid to offset decline in revenue collection from other areas. Among all the states, Telangana, West Bengal and Rajasthan have seen a noticeable increase in prices of liquor in the last few months.

LocalCircles conducted surveys to better understand how this increase in prices due to Covid cess or surcharge is impacting the buying behaviour of the consumers in the states of Telangana, West Bengal and Rajasthan. The survey received more than 25,000 votes from residents of Telangana, West Bengal and Rajasthan.

Citizens were asked because of the Covid cess imposed by Government of their state on alcohol, will they consider downgrading to a cheaper alternative alcoholic brand or product in the coming months to stay within their budget. In response, 55 per cent residents of Telangana, 50 per cent residents of West Bengal and 49 per cent residents of Rajasthan answered in an affirmative.

In the last 6-7 months, taxes on liquor in Telangana have been increased by around 40 per cent, leading to a sharp increase in the liquor prices in the state. In May, when the liquor shops were reopened after the lockdown, a tax increase of around 16 per cent was imposed on the sale of liquor in the state.

In West Bengal, more than 1.4 crore cases of hard IMFL and around 80 lakh cases of beer are sold annually. The large number of alcohol consumers ensured that the state earned nearly Rs 11,000 crores in taxes on liquor sales last year.

With the Covid-19 pandemic forcing majority of businesses to be shut due to the lockdown and reducing the state tax collections, West Bengal Government decided to impose a 30 per cent Covid-19 sales tax on liquor in the state in a bid to collect more revenue.

In Rajasthan, the government decided to impose a Covid surcharge on liquor in the state in a bid to collect more revenue. The price increase was up to Rs. 30 per bottle. Overall, it comes to taxes on liquor being increased by over 30 per cent in the last 6 months.

Consumers were also asked if their state Government removes or significantly reduces the Covid cess on beer, wine & other spirits, thus reducing the price, will they increase the quantity of liquor they purchase. In response, 45 per cent respondents of Telangana, 36 per cent respondents of West Bengal and 67 per cent residents of Rajasthan answered in a 'yes'.

In a related poll, 36 per cent respondents from Telangana, 27 per cent from Rajasthan and 48 per cent from West Bengal said that someone in their household consumes alcohol.

The sales of liquor have been extremely slow across states owing to the economic conditions, especially the pay cuts and job losses, due to which the disposable income to the residents has reduced. Many vends have said that they have only been able to reach about 50 per cent of their usual revenue due to the steep increase in prices.

The data from the excise departments of these three states also shows that the sales volumes in the month of May and June this year have reduced when compared with the same months last year.

The Delhi government had also levied a Corona Cess of 70 per cent on liquor but it was quickly rolled back after witnessing a drastic reduction in alcohol sales. The Odisha government too recently lowered the Covid cess from 50 per cent to 8 per cent after experiencing a reduction in alcohol sales and a corresponding decline in excise revenues.