Foreign liquor may be cheaper on WTO nudge

RUN UP TO BUDGET 2006

Finance ministry may abolish additional duty of 50-75%.

The threat of punitive action from the World Trade Organisation (WTO) can force the government to make foreign liquor imports cheaper in the Budget.

The finance ministry is considering a proposal sent by the commerce department to abolish additional duty that is charged in lieu of state excise on liquor imports.

Wines and liquor draw a minimum additional duty of 50 per cent and 75 per cent, respectively. This is apart from the 100 per cent import duty on wines and 150 per cent on liquor. This additional duty can be higher depending on the CIF value of imported liquor.

In addition to this central levy, some states impose excise duty on imported liquor, leading to double taxation.

Government officials admitted that the proposal to abolish additional duty was being considered as the current tax regime for imported liquor could invite WTO action against India. Several countries, including the US, the UK, Australia and South Africa, have been lobbying for a reduction in duty on imported liquor.

The officials said the main contention of the EU was that imported liquor was taxed twice in India -- one at the stage of the imposition of the additional duty and then the levy of several fees, duties and taxes by individual states in India. This, they said, was violative of the WTO agreement.

The EU has already initiated action under the Trade Barriers Regulation of the European Commission to investigate the tax regime in India for imported wines and spirits.

"The thinking is that if the additional duty is withdrawn, then a state can be allowed to countervail its excise duty on imported liquor the same way it currently does for domestic liquor coming in from another state," an official said.

Officials said, according to present legal provisions, state governments could also be allowed to impose an "import privilege fee" on imported liquor in lieu of state excise. This will bring parity between domestic and foreign liquor.