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The Andhra Pradesh government has reduced excise duty and value-added tax (VAT) on lower category liquor to make these affordable to the masses. Interestingly, this could result in a rise in revenues to the state exchequer, as volumes are likely to increase following the move.
After the tax cut, Indian made liquor (IML) of 180 ml bottle will now be available at a retail price of Rs 35-45. This means a saving of Rs 20 per 180 ml bottle to people who usually consume lower category brands, also known as 'cheap liquor.
The price reduction is expected to boost sales, which have been hovering at a four per cent growth compared to an average 8.8 per cent growth in the past decade. A rise in sales volume is likely to contribute an additional Rs 2,000-3,000 crore in revenues for the government, according to industry estimates.
The two categories of liquor on which taxes were lowered come with a basic price of Rs 350 per case (nine bottles of 1,000 ml or 12 bottles of 750 ml) and a basic price of Rs 400, respectively. The other end of the spectrum goes beyond a basic price of Rs 5,000, though the lower categories of liquor account for about 60 per cent of the total consumption in Andhra, thus making liquor business largely a volume play as far as government revenues are concerned. Last year, the state registered a sale of 28.8 million cases.
According to the revised tax structure, the two categories will be levied at 140 per cent VAT in place of the existing 190 per cent rate. An excise duty of Rs 30 per proof litre on the Rs 350 category and Rs 40 per proof litre on Rs 400 basic price category will be levied in place of the present Rs 47 per proof litre or 87 per cent of basic price, whichever is higher.
"These two categories were clubbed into the Rs 450 category and above (up to a basic price of Rs 2,500 per case that attracted 190 per cent VAT on first sale) in the recent past by imposing a uniform tax. Now the government has not only separated these two categories from the rest, but it has also increased the levies on categories that sit on top of them. Because of this, a brand that was available at Rs 75 for a 180 ml bottle will now cost Rs 85 and an Rs 85-product will now cost Rs 90 for the consumer. This means, there has been an attempt to push consumers at the lower end towards these more affordable categories," D Venkateshwar Rao, secretary of AP Wine Dealers' Association and president of Telangana Wine Dealers' Association, told Business Standard .
Andhra is a thorough IML market compared to Telangana, where toddy is an alternate source of intoxication for lower-income families in rural and semi-urban areas.
The move comes in the light of Telangana government's recent attempt at launching a Rs 30 per 180 ml liquor, which was perceived as a potential threat to the liquor revenues in the border districts of AP.
Liquor had emerged the second biggest source of the undivided AP's own tax revenues in the 1990s, ever since the state started looking for more funds to spend on welfare programmes such as Rs 2 a kg rice scheme launched by former chief minister N T Rama Rao.
The move also comes at a time VAT receipts from liquor sales were running neck-to-neck to that of petroleum products. The state had increased the taxes on petrol and diesel to make up for the revenue losses on account of the decline in oil prices, to a certain extent. As the Telangana government has kept the prices of petroleum products a little low, liquor and minerals remain the two focus areas for the AP government to mop up revenues.
In the current financial year up to September 2015, petroleum products and liquor contributed to a VAT of Rs 41,97.62 crore and Rs 3,876.81 crore, respectively. In 2014-15, total government revenues from liquor sales stood at Rs 11,480 crore, which include Rs 7,290 crore by VAT, Rs 1,820 crore through licence fee collected from the retailers and Rs 1,679 crore from excise duty compared to an estimated Rs 35,126.6 crore tax receipts from sale of all commodities.
When added with the excise revenue, liquor contributed Rs 5,796 crore to the state exchequer in the current year up to September 2015, compared to Rs 4,197 crore from petroleum products, making it the single biggest source of revenue for the government.
The AP government had set a budgetary target of Rs 39,815 crore by way of taxes on commodities in the current year. Liquor remains the only dominant source of consumption-based taxes apart from the petroleum products in AP.
"By reducing taxes, the government has created two new categories of cheap liquor without compromising much on the existing liquor revenues. These two categories may generate a volume sale of a million cases a month from the present 100,000-200,000 cases level. This also could be a way forward for Telangana government, which has been battling with the menace of chemical-mixed toddy and ID (illicitly distilled) liquor," said AP Wineries and Distilleries Association president Niranjan Lal Agarwal.
AP government has also reduced taxes on wine by bringing down VAT to 100 per cent from 150 per cent and excise duty to five per cent of basic price from the earlier level of 15-28 per cent level, to encourage wine consumption. It has also brought down the taxes on beer.
