Understanding GST on Liquor in India: A Comprehensive Guide

The introduction of the Goods and Services Tax (GST) in India aimed to simplify the tax structure and consolidate various state-level taxes. However, alcohol, a significant revenue earner for state governments, has been excluded from the GST regime. This exclusion is due to its high revenue contribution and the desire to control consumption through high prices.

India's approach to taxing and regulating alcohol varies from state to state, reflecting regional differences and government policies. Here, we explore the taxation landscape for alcohol, focusing on excise duty and VAT, and provide an overview of how these taxes impact the price of liquor across different states.

The Reason Behind GST Exclusion for Alcohol

There are two primary reasons why alcohol has not been brought under the GST regime:

To maintain a strong revenue flow for state governments independent of GST revenue. It is estimated that taxes on alcoholic beverages contribute significantly to state revenues, amounting to billions of Indian rupees annually. To keep prices of alcohol high to limit consumption. This strategy aims to influence drinking behavior through financial incentives.

Taxation of Alcohol in India

While alcohol is not under the GST regime, it remains subject to other taxes, primarily excise duty and VAT. These taxes contribute to the high cost of liquor in India, with tax rates varying significantly from state to state.

Excise Duty and VAT on Alcohol

Excise duty and VAT are the primary taxes levied on alcohol in India. The rate of these taxes differs across states, leading to significant variances in the price of alcoholic beverages.

Example: Excise Duty and VAT in Maharashtra

Let's take Maharashtra as an example to illustrate the tax rates. The excise duty and VAT rates in Maharashtra can vary based on the type and volume of the liquor consumed.

It is important to note that alcohol is prohibited in some states such as Gujarat, Bihar, Nagaland, and the union territory of Lakshadweep.

Tax Rates in Different States

Even within states that allow alcohol consumption, there is a wide range of tax rates applied to different alcoholic beverages. For instance, a beer costing 125 INR in Odissa might cost 180 INR in Maharashtra. This disparity in tax rates highlights the complex and diverse taxation landscape of alcohol in India.

Revenue Contributions from Alcohol Sales

Alcohol plays a significant role in state revenues, with some states relying heavily on it for their financial health. According to Jose Sebastian, an associate professor at the Gulati Institute of Finance and Taxation in Thiruvananthapuram, alcohol accounts for around 20% of a state government's own revenue in most states.

The following table provides the amount in billion Indian Rupees for the financial year 2016:

State Tax Revenue (INR in billions) Tamil Nadu 296.72 Haryana 197.03 Maharashtra 180 Karnataka 153.32 Uttar Pradesh 140.83 Andhra Pradesh 127.39 Telangana 121.44 Madhya Pradesh 79.26 Rajasthan 55.85 Punjab 50

Conclusion

In conclusion, while alcohol sales in India have not been brought under the GST regime, they remain an important source of revenue for state governments. The varying tax rates and the prohibition in some states ensure that alcohol continues to play a significant role in state finances and consumer behavior.