Tax on alcohol: More states to follow Delhi's 70% special corona fee on liquor

KEY HIGHLIGHTS

• Revenue from taxes on liquor accounts for 15-25% of states' own tax revenue
• Delhi collected about Rs 5,500 crore from liquor alone in the last fiscal
• Andhra Pradesh had earned around Rs 8,300 crore
• States can impose taxes since alcohol does not come under GST

Taxes on liquor are the low hanging fruits for states battling with revenue constraints on the back of a nationwide lockdown due to coronavirus.

After the Delhi government levied a Corona fee of 70% on the MRP of the liquor sold, the Andhra Pradesh government has also increased taxes on liquor by 50% to 75%. Earlier, Rajasthan government increased the taxes on liquor and beer by 10 percentage point. The maximum tax on liquor in Rajasthan is 45%.

Others might follow suit given the state governments face tremendous scarcity of resources owing to outbreak of coronavirus and the resultant lockdown. Since taxes on liquor are outside GST, the states have the authority to change the rates without seeking permission from a central authority like GST Council.

Revenue from taxes on liquor accounts for 15-25% of states' own tax revenue. In case of Delhi, the state expects to mop up Rs 6,300 crore from taxes on liquor out of its estimated own tax revenue of Rs 44,100 crore in 2020-21. In the previous year, Delhi is likely to have collected Rs 5,500 crore from liquor alone.

The 70% corona fee will be big boost for Delhi government tax collection. It is still not known if the special Corona fee is just a short-term levy or it will be extended for the whole year.

In case of Andhra Pradesh, the state raised around Rs 8,300 crore in the previous financial year through taxes on liquor sale.

Rajat Bose, Partner, Shardul Amarchand Mangaldas and Co, says "Tax on liquor is a low hanging fruit at the moment for state governments to garner revenue, which has otherwise dried up in light of the economic lockdown. Given the massive queues in front of liquor shops since yesterday, the state government can hope for a robust collection of taxes in the immediate future which can be channelised for funding the growing demand for testing and health care services during these times."

Tax on liquor, which is also called state excise, helped states mop up close to Rs 1.7 lakh crore in the previous financial year. This year, total collection through state excise could cross Rs 2 lakh crore. 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.

Any rate changes under GST have to be approved by the governing body -- the GST Council -- and the rates under GST are uniform across states.

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