|The business media is reporting that the Planning Commission is recommending that alcohol prices be standardized across the country. They are recommending that the liquor taxes be streamlined with duties being levied only on the value of the liquor (or ad valorem) in contrast to the current structure which levies a mix of ad valorem and specific duties.|
The Planning Commission is recommending that the Goods and Services tax (GST) have two components – a central tax and a uniform state tax across the country. And finally, the commission has also suggested lower taxes for wine and beer.
We first heard rumblings of this in November and it appears that the government is moving a step closer to realizing this objective. Lower and uniform taxes across the country could have an significant impact on wine consumption. Probably one of the key barriers to wine consumption in the country is confusion over the high prices and why they differ so much state to state.
This move would result in an initial revenue loss but the commission believes that over time that loss can be made up by the decline in smuggling and consequent revenue losses. States like Kerala, Tamil Nadu, Punjab and Uttar Pradesh would suffer the most. As a result the commission is also recommending that the Central Government assist them through some form of compensation.
Currently excise duties can vary dramatically from state to state. The total tax revenue generated through sale of liquor was Rs. 28,000 crore in 2004-05. It is left to be seen how the States respond to this proposal. They would probably won’t be happy and certain compromises may need to be made. Only time will tell how the tax saga unfolds.
Fore more information read the Economic Times and the LiveMint stories which first reported on this.