ALCO-BEVERAGES – STATE POLICIES MORE FRIENDLY

[Dr. Sanjiv Agarwal]

While it is acknowledged that state excise duty constitutes a major chunk in total revenue, both in terms of absolute numbers as well as percentage of total revenue, the regulation should also lead to quality in distribution and happy retail experience, UP, Maharashtra and Tamil Nadu lead the pack in terms of revenue whereas Himachal Pradesh, Delhi and Uttarakhand are laggards.

Most of the States have revised or are in the process of issuing their revised excise policy wherein efforts are to increase the revenue and regulate the business of production, distribution and consumption of alco-beverages.

In this year’s budget, many states have projected a rise of 10-30 percent on account of state excise. Covid Cess and taxability are being reversed or lowered by many states. According to reports, alco-beverages sector has shown signs of recovery, more so from key market segments which include Maharashtra, Uttar Pradesh, Karnataka, Kerala and Tamil Nadu. Also, production is back on track with vaccine in place now and situation easing in most parts.

There should be relaxed norms to store alco-beverages at home with a reasonable limit of all varieties. Such limit could be per house or per adult individual. Home delivery may also be facilitated. Further, for consumption at private parties, other than at licensed premises, norms ought to be relaxed, subject to reasonable checks and balances.

For example, in Rajasthan, excise duty on beer has been reduced by 10% which will lead to lower MRP and increase in consumption leading to more tax revenue for state. Also, bars have been allowed to establish and operate micro breweries. Over 7500 shop licenses will be issued by way of e-auction. There will be no Covid surcharge on all excise items except on Indian Made Foreign Liquor (IMFL) and Bottled in Origin (BIO). There will also be no levy of special vend fees and annual license fees on IMFL / beer shops in urban areas. Advance deposit amount also gets reduced from 14% to 8%. All in all, efforts will be to collect more tax revenue to the tune of  Rs.  13000   crore in  FY 2021-22.

In yet another state, Delhi Government has gone one step ahead and reduced the legal age for drinking but however, does not allow for any new shops. Legal drinking age has been a controversy and there are arguments on both sides. Delhi Government has reduced the minimum age for consumption of liquor from 25 years to 21 years, thus opening this age group to enjoy consumption of liquor without any obstacles. This may increase the consumption directly leading to surge in tax revenues. It is expected that with overall changes, revenue may jump by 20%. In Mumbai too, age is 21 for wine and beer.

Further, no new liquor shops will be opened and there will be norms for shops in terms of area, layout etc. Now onwards, Government will not run any liquor shops in Delhi (Presently 60%  are owned by Government). It will also ensure equitable distribution of shops which will discourage liquor mafia. In Delhi, recovery of sales and revenue rise are going to surge because there are positive reforms in excise policy, lowering of legal drinking age, allowing liquor to be served till 3 A.M., consumption inducing reforms, equitable geographic distribution of retail outlets and so on.

Delhi’s excise policy hopes to increase revenue through rationalization of license instead by new taxes or duties on bottles. There will be flat registration fee for brands. Excise duty and VAT shall be reduced and so on.  It aims at bringing in ease of purchase by retail buyers resulting in better experience.

Should Government be in this business is also a debatable issue. Should they own and run shops ? Should they only license and regulate? The excise policy and States should confine their role in regulating, taxing and framing policy norms for liquor trade. However, it should be ensured that law, polices and rules are adhered to and complied with.

Governments may consider reducing its presence or exiting from retail distribution paving way for private players, equitable distribution and enhancing of retail experience of customers. Regulation and participation at the same time is in contrast and also against principles of good governance.

All Governments should make a 360 degree review of policies from procurement to production to retail distribution as liquor business is in dire need for an overhaul or detox.

With the changing times, consumption of alcohol is also no more gender specific with fairer sex too consuming liquor openly. For this, it is desirable to have better shops, safe environment and make women feel to buy booze. This calls for shops with proper location, illumination, proper and trained staff so that women customers do feel dignified and comfortable. If required, necessary changes in excise policy of states must be undertaken.

States are now seen to be more liberal in their approach and business policies keeping customers, affordability and revenue in mind. Costs have been stable and supply chains normal after Covid peak. The reasons attributable to growth could be young consumer age, increased population under legal drinking age, shift for branded liquor, changing consumption habits and trend, reduced gender preference etc. Post pandemic, people have also turned back to normal level of consumption, that too, fast.

Many states are taking steps to manage tax revenue from alco-beverages. Given the increased revenue targets via rationalization of prices, taxes and other policies, consumption is bound to go up.  With host of pro-business and pro-revenue steps, sales of alco-beverages is now on growth path which means it is good for both, businesses as well as state revenues. This will automatically raise tax revenue both for centre and states. While states will earn from excise duties and value added tax, centre is bound to reap profits from input taxes of these companies who may not get input tax credit under the GST regime. So the centre too profits from state policies – a win-win federalism.