Coronavirus impact: No alcohol sale hits state revenues; Rs 2 lakh crore target looks iffy

Key Highlights:

    States in 2019-20 had budgeted for Rs 1.70 lakh crore through tax on sale of liquor

    Taxes from liquor sale account for 15-25% of the state's own tax revenue

    Tax from liquor sale accounts for over 20% of UP, Karnataka and Uttarakhand's own tax revenue

As alcohol industry appeals for sale of liquor outside containment zones, the states might find it in good 'spirit' to accept the request given the impact it has on the revenues.

The states in 2019-20 had budgeted for Rs 1.70 lakh crore through tax on sale of liquor, which is 7.6% of their total own tax revenue. In 2020-21, the total tax collection from sale of liquor was expected to be Rs 2 lakh crore.

The budget estimates of 16 large states (except Andhra Pradesh, Gujarat and Bihar) show that they had expected to collect Rs 1.65 lakh crore from tax on liquor in 2020-21. However, with sale of liquor prohibited during the lockdown period, these estimates will see sharp downward revisions.

While Gujarat and Bihar prohibit sale of liquor, Andhra Pradesh is yet to announce its budget for 2020-21.

The tax levied by the states on liquor is called state excise. The Home Ministry has while extending the lockdown period from 14 April to 3 May had strictly prohibited sale of liquor.

In most states, taxes from liquor sale account for 15-25% of the state's own tax revenue. In states like UP, Karnataka and Uttarakhand, tax from sale of liquor accounts for over 20% of the state's own tax revenue. In states like West Bengal, Chhattisgarh, Himachal Pradesh, Punjab and Telangana, state excise accounts for 15-20% of the states' own tax revenue.

In some states like Kerala, Maharashtra and Tamil Nadu tax on liquor account for less than 10% of the state's own tax revenue. The overall proportion of taxes from liquor sale as a percentage of states' own tax revenue is in single digit primarily because some of the bigger states like Maharashtra, Tamil Nadu have lower tax collection from sale of liquor while states like Gujarat and Bihar earn no revenue as liquor is banned in these states.

Alcohol is not part of the Goods and Services Tax (GST), and hence states have authority to decide the rate of tax to be levied on alcohol. Therefore, for states, goods like alcohol petroleum products which are outside the scope of GST allow them to raise additional revenue by levying higher taxes on these products.

Recently, Rajasthan increased the taxes on liquor and beer by 10 percentage point.

The excise duty on Indian-Made Foreign Liquor (IMFL) bottles with price below Rs 900 has been increased from 25% to 35%, and the duty on liquors with prices above Rs 900 has been increased from 35% to 45%. The duty on beer has also been increased from 35% to 45%.

States have three major components of revenue - own revenue receipt (tax and non-tax), share in central taxes and central grants. Their own tax comprise of State GST, sales tax and VAT (on petroleum products), state excise (on liquor and other alcoholic beverages), stamp duty and registration fee, taxes on vehicles, etc.

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