Our never-ending wine taxation saga truly never ends. The latest salvo in this ongoing tug a war has the Maharashtra state government reducing the VAT (value added tax) from 25% to 20%. The government will also provide a 16% rebate to wineries thus reducing the VAT in effect to 4%.
The additional VAT had been increased earlier this month at a time when wineries are suffering from a sharp drop in sales. Farmers had begun complaining that their grapes hadn’t been picked up and that they were not receiving their payments.
The root of the problem lies in the unrealistic growth projections for the Indian wine industry. Wineries raced to build capacity, lock in contracts with farmers, invest in their distribution networks, acquire more land and in some cases buy up other wineries too. As a result, many overextended themselves. To make matters worse, the global economic crisis resulted in lower consumption and the Mumbai attacks last November brought tourism sales to a grinding halt. With several thousands of litres unsold, the wineries had no choice but to stop crushing grapes which in turn upset the contract farmers as deals were broken. It has been a traumatic turn of events for the small wineries though large ones too like Indage Vintners seeing a 60% drop in sales.
Some wineries are calling for drastic measures. “There has to be a national policy on wine with a single tax system in all states; the VAT needs to be reconsidered and the government should purchase at least 25% of the wine stocks. These are some measures that have been suggested that may give a lease of life to the wine industry,” said Shivaji Aher of Renaissance Winery in an article in DNA India.
Strangely, at such a dire time, the wine industry has not taken advantage of the full set of funds available to it through the central and state governments. There are funds available under the department of science and technology, the department of biotechnology, the agriculture ministry and some research institutes. Hopefully, the India Grape Board which met for the first time recently, will facilitate the movement of the funds and help resurrect the struggling domestic wine industry.