Explained: Why are states so interested in excise taxes on liquor?

State revenues generally comprise two categories: tax revenue and non-tax revenue. Tax revenue is again divided into two categories: the state’s own tax revenue and the share of central taxes. (Express photo by Kamleshwar Singh)

With the closure restrictions reduced with the extension that began Monday, liquor stores reopened their doors in various parts of the country. The move has been a respite for state governments that were struggling to fill their coffers as economic activities stalled due to the national blockade and dried up their sources of income. The manufacture and sale of liquor is one of the important sources of income for the states.

The liquor contributes a considerable amount to the treasurers of all the states and territories of the Union, except Gujarat and Bihar, who have prohibited sales. In general, states levy excise taxes on the manufacture and sale of liquor. However, some states like Tamil Nadu also impose Value Added Tax (VAT). In addition, they also charge special fees for imported foreign liquors, transportation fees, and registration fees for labels and brands. A few states like Uttar Pradesh have imposed “special duty on liquor” to raise funds for special purposes, such as keeping street livestock.

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‘State Finance: A Study of 2019-20 Budgets,’ a report released by the Reserve Bank of India in September 2019, shows that state alcohol taxes account for about 10-15 percent of revenue. prosecutors typical of a majority of states. In fact, state excise taxes on liquor are the second or third largest contributor to the state’s own tax revenue after sales tax (now GST). This is why states have always wanted to keep liquor out of the reach of the GST.

What states earn from excise taxes on liquor

The RBI report shows that during 2019-20 the 29 states and two UTs (Delhi and Puducherry) had budgeted an amount of Rs 1.75.501.42 crore from the state special liquor tax, 16 percent more than Rs 1, Rs 50,657.95 million collected during 2018-19.

On average, states collected around Rs 12.5 crore per month from excise duties on liquor in 2018-19, which was around Rs 15.5 crore per month in 2019-20 and was expected to go further of Rs 15,000 crore per month in the current financial statement year. But that was before the shutdown happened.

“Uttar Pradesh collected an average monthly amount of Rs 2.5 billion of liquor in the last financial year and we expect to obtain around Rs 3 billion in the current fiscal year,” said a senior UP government official.

Top Five States for Excise Taxes

Because there is a gap in the state’s revenue data, year-round figures are available only through the 2018-19 fiscal year. During that period, the top states in terms of excise tax revenue were Uttar Pradesh (Rs 25.1 billion), Karnataka (Rs 19.75 billion), Maharashtra (Rs 15.343.08 million), West Bengal (Rs 10,554.36 million) and Telangana (Rs 10,313.68 crore). State figures are not available for the amount collected as VAT and special import duties for foreign spirits.

The highest numbers in Uttar Pradesh are because the state has excise taxes on both the manufacture and sale of liquor. It does not collect VAT separately unlike other states like Tamil Nadu. The amount collected as VAT in another state is not reflected in the collection of special taxes.

Both Bihar and Gujarat have banned liquor. But while Bihar had zero liquor revenue during 2018-19 and 2019-20, Gujarat earned a negligible amount. Andhra Pradesh had also announced a ban on alcohol consumption last year; however, the sale of the liquor has been allowed with the “prohibition tax” as of Monday.

What is the state tax?

The state tax applies primarily to liquor and other alcohol-based items. Income comes primarily from products such as spirits, fermented spirits, malt spirits, foreign spirits and liqueurs, commercial and denatured spirits, and medicinal wines, medicinal and toilet preparations containing alcohol, opium, etc., opium, hemp, and other drugs. , India made foreign spirits, liquor and sales to canteen depots (CSD). Furthermore, a considerable amount comes from licenses, fines and confiscations of alcoholic products.

What are the other sources of state income?

State revenues generally comprise two categories: tax revenue and non-tax revenue. Tax revenue is again divided into two categories: the state’s own tax revenue and the share of central taxes. The state’s own tax revenue mainly comprises three main sources: income taxes (agricultural income tax and taxes on professions, trades, calls and employment), property taxes and capital transactions (income from land, stamps and registration fees, urban real estate tax), and product and service taxes (Sales Tax, State Sales Tax / VAT, Central Sales Tax, Sales Tax Surcharge, Tax Receipts Turnover, Other receipts, State taxes, Vehicle taxes, Taxes on goods and passengers, Taxes and duties on Electricity, entertainment tax, State tax on goods and services and other taxes and duties).

According to the RBI study, in 2019-20, SGST had the largest 43.5 percent share in the state’s own tax revenue, followed by the 23.5 percent sales tax (primarily on petroleum products that are outside the GST), 12.5 percent state tax and 11.3 percent tax on property and capital transactions.

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