The question of high taxes and import duties on wine is a vexed one. The labyrinthine ways of the Indian excise department are a mystery to most people, not least for wine and spirits importers who are closely affected. Ultimately, it is the hapless consumer who suffers the most. Sommelier India Wine magazine keeps the issue alive with regular comments and reports. Isheeta Gupta brings us some salient facts.
Import Procedures. All alcoholic beverages may be imported into India under an Open General Licence (OGL) which means no specific licence is required to import wines into India. However, for any general imports, the import company must get an Import Export Code (IEC) issued by the Director General of Foreign Trade, Ministry of Commerce.
It is not necessary to pay custom duties immediately on import. Wine can be stored in a Customs Bonded Warehouse (CBW) for up to three months without having to pay customs duty or interest on it. To get a customs bond, an importer is required to provide a bank guarantee for double the value of the duty. Imported wines may be sold either duty free (against duty free licences typically held by hotel, restaurants or embassies or duty free shops in airports) or duty paid (to licensed trade), after paying the customs duty applicable and removing the stocks from customs bond (de-bonding).
State licences to sell liquor. In New Delhi, the annual licence fee to sell imported alcoholic beverages is Rs 6,00,000 per year (USD 10000 per year). Processing charges are extra.
Annual Brand/Label registrations in each state:
All brands (whether imported or produced in India) have to be registered with the Excise Department of each state. Formalities may include submitting a cost-card of prices proposed to be charged down to the MRP (Maximum Retail Price) and payment of registration fees ranging from nil to Rs 20,000 per year depending on the state.
There are several levels of taxes. The main taxes on wines in India are:
A. Custom duties on imports
Custom duties are imposed on the CIF value and are roughly 160%. There are some additional fees like a Government education tax and as mentioned in the import note above, there is also interest payable.
B. State taxes
EXCISE PERMITS: State taxes (Excise duty) payable to obtain a permit to transport and consume wine within that state. Alcoholic beverages are a state subject in India, so each state has its own rules and regulations and duties & taxes on wine.
Written permission (“Permits”) need to be obtained from the concerned excise authority for movement of wines from winery or CBW to the trade. Such permission is generally issued after payment of the state excise duties applicable; in case goods are being moved between two states, this would entail paying an Import Fee (for the state to which goods are being sold) and an Export Pass Fee (the state from which goods are being sold).
Excise duties vary from state to state, with Rs 300 per bulk litre in Karnataka (Bangalore), similarly in Maharashtra (Mumbai) and nil in Haryana (Gurgaon). Taxes were 30% of final MRP in Delhi (this is roughly 150-200% of CIF) in 2010-2011.
The new tax rates, announced on 7 June 2011 will be effective from 1 July, 2011. The tax rate in Delhi has now been revised to 65% of the importers wholesale price (WSP) up to Rs 1000 and 50% on the additional value. Wholesale Price, WSP has been defined as the duty-free import price plus importer’s margin. It does not include Custom Duty, Duty, VAT and other levies, if any. It does, however, include CIF (cost, insurance and freight), margins and all other charges of the importers/L-1F Licencee.
The catch is that the “Licensee will have to submit an affidavit declaring that the wholesale price declared in Delhi is lowest in comparison to wholesale price declared in neighbouring states ie, Haryana, Union Territory of Chandigarh, Punjab & UP and shall not be allowed wholesale price more than the said WSP for any brand of Foreign Liquor”.
Delhi having one of the highest state taxes in India, the authorities are attempting to force importers to keep higher prices in other states to prevent cross-border smuggling. It’s no wonder that bars and restaurants in Gurgaon are flourishing!
This means that a wine with a WSP of Rs 500, excise duty will be Rs 325 and the retail price will be roughly Rs 1000 making excise duties fairly similar to last year with only a marginal increase in taxes for duty free wines and marginal decrease of taxes in duty paid wines.
Wine with a WSP of Rs 1200 will be subject to taxation of Rs 750. Any hope of decrease in taxation has been wishful thinking on our part. The only saving grace of the new rates is that the calculation is fairly simple (compared to the last financial year where the tax rate had to be reverse calculated from MRP).
Indian wines will also be taxed on the WSP basis with more slabs, starting at 65% on WSP of Rs. 0-250. It will be 40% for the slab of Rs. 100-250. For a higher price bracket it will be 30% on the amount greater than Rs. 250. Once again, the tax rates are unfair to importers. Most upmarket and big Indian brands will be priced at over Rs 250 putting them in the 30% slab whilst taxation on imports is far higher. Many states also have VAT on alcoholic beverages that vary from 20-25%.
In addition to this, if the wines are to be retailed, a sales incentive of around Rs 100 ($2) per bottle is payable to retail sales staff as to sell the wine. Since every supplier is offering this, the shop boys do not sell wine unless they receive cash incentives. In Mumbai, this is considerably worse as the shops expect importers to pay for the display of their products as well as offer two to three bottles free on every case (after making the importer pay the taxes).
Customs and excise ‘babus’ must also be paid monthly incentives to process paperwork.
You can imagine, these factors add considerably to costs, leading to a large mark-up on the wines for the importer, in addition to the taxes. With hotels and restaurants constantly complaining about wine prices, the producers, importers and consumers are bearing the brunt of it.
It is the Government that needs to answer for this.