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EXPECTATIONS IN 2022 BY LIQUOR INDUSTRY

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EXPECTATIONS IN 2022 BY LIQUOR INDUSTRY
By: Dr. Sanjiv Agarwal
January 13, 2022
All Articles by: Dr. Sanjiv Agarwal       View Profile
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Liquor industry has been through a roller-coaster ride in last two years of Covid pandemic so much so that it that it witnessed complete lock downs, high taxes and other levies, distribution distractions, post-Covid increased sales, changes in distribution patterns, new product mixes and so on.

The liquor industry has undergone changes for good like alternative use of raw materials, new product mixes leading to cost and tax efficiency, new experiments with distribution channels and changed consumption patterns.

The new year 2022 has just arrived. What could we expect in 2022 for liquor industry? While there could be number of wishes and expectations, yet some may look like a distant dream. For example, subsuming all state taxes on liquor or alco-beverage industry into Goods and Services Tax (GST) or allowing for inter-tax input tax credit. Whatever we may wish, there are few things which may seem workable in the interest of all brand owners, manufactures, consumers and tax collectors.

Distribution network could go a sea change if all the states allow for online sale of liquor or through e-commerce platforms. This could avoid hassles of going to retail shops / outlets, more so during Covid times. This will not be a burden on any one or the infrastructure but will add to everything- production, consumption, tax collection and above all, satisfaction to all. The Government is happy, e-com platforms flourish, retailers earn more and consumer is of course the king, ordering from and getting delivered to his house or actually living room. The new species, aggregators or online delivery fellows, too make money. Infact it is a win-win for everyone out there. Few states like Maharashtra, Odisha and West Bengal have already adopted this. But this is not allowed for inter-state supplies. Another variant of this distribution is allowing home delivery of alco-beverages to retailers which are sufficiently large in numbers, say over 80,000.

The alternative use of ethanol into fuel is also heartening. Recently, Central Government reduced the rate of GST on ethanol from 18% to 5% in order to encourage and promote use of ethanol in blending with petrol. The product will be known as Ethanol Blended Petrol (EBP). This will not only reduce the fuel prices but also reduce India’s dependence on imported gasoline. Moreover, ethanol will be put to a more productive use and help Indian companies producing ethanol such as sugar companies. Ethanol is derived from sugarcane juice, molasses, sugar, sugar syrup and other food grain based feed. The Government plans to have 20% ethanol blending in petrol in India by the year 2025-26.

Presently, under the EBP project of Central Government, Oil Marketing Companies (OMCs) sell petrol blended with ethanol up to 10 percent which had been extended to whole of India except Union Territories of Andaman Nicobar and Lakshadweep islands with effect from April 01, 2019, to promote the use of alternative and environment friendly fuels. Not only this, recently Government fixed a higher price of ethanol for 2021-22 sugar season for EBP programme. It may be noted that the ethanol procurement by public sector OMCs has increased from 38 crore litre in Ethanol Supply Year (ESY) 2013-14 to contracted over 350 crore litre in ongoing ESY 2020-21. So ethanol is a good business idea for sugar and alco-beverages sector.

States have been discovering and experimenting with imposition of new levies and taxes on alco-beverages sector, just to have more revenue to meet out the revenue expense deficit. This can be in the form of new taxes surcharge, levy, cess and by whatever name called.

If we look at the recent developments, we will find that almost all states levied or hiked the state excise duty rate during Covid to get more revenue, seeing the demand surge. In the State of Maharashtra, an excise tax of ₹ 10 per bottle was levied on wine bottles, over and above usual state excise duty. Similar, levy may be imposed on beer or any form of alco-beverages packing.

Similarly, state administration may be vigilant and regulate market practices. Recently, Kerala State levied fine on retailers who were overcharging and to curb other malpractices into liquor trade. The fine levied was 1000 times the amount overcharged to customers. Hoarding of liquor brands suffer a fine of 100 times the difference between the maximum retail price (MRP) and one sold at that place. Non-displaying the prices at shop attracts a penalty of ₹ 5000. Such fires and penalties also add to state’s tax kitty.

While states may be justified in imposing such levies for the purpose of proper regulation of alco-beverage trade and also revenue mobilization, based on the canon of ‘ability to pay, alco-beverage sector would certainly look for reasonability of taxation and other imposts.

Liquor industry in the given framework and situation look forward for:

  • Inclusion of alco-beverages in GST regime
  • Consistent and stable state excise policies in medium term of 3-5 years
  • Reasonable tax structure
  • Clarity on new levies and its criteria so that businesses policies and planning does not get distracted
  • New licenses to encourage use of molasses and ethanol production
  • Incentives and lower taxes on production and sale of sanitizers

Alco-beverage industry is no doubt a substantial revenue earner for states. While it is a milking cow, yet it needs to be nurtured and promoted.

 

By: Dr. Sanjiv Agarwal - January 13, 2022

 

 

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