What liquor shops re-opening in India means to the States

The third nationwide lockdown amid the novel coronavirus came into effect on Monday with the highlight being the re-opening of liquor shops in the country. Across many parts of India, people were found in queues in front of liquor shops stretching 500 metres distance or even beyond.

After 40 days of lockdown, liquor shops are open. Now the question arises why the government has re-opened these shops?

Sale of liquor is one of the major springs in the State government’s revenue. The re-opening comes at a time when maximum States in the country have been stressed to fill their funds amid the trouble on the version of the COVID-19 lockdown.

How much states earn from alcohol?

According to a study by Indian Ratings & Research as many as 15 States in India get at least 10 per cent of their incomes through a pool including State Goods & Services Tax (SGST), VAT (Value Added Tax), sales tax on petrol and diesel and other elements.

Reportedly, some states even earn Rs 700 crore every day through the sale of liquor. The share of revenue generated by liquor is more than 20 per cent for five states, including Rajasthan and Karnataka, 15-20 per cent for seven states, including Punjab, Uttar Pradesh and Madhya Pradesh and 10-15 per cent for three States, comprising Odisha and Andhra Pradesh.

With several states unlikely to meet their yearly targets, the excise revenue that is generated from liquor has been a vital factor for the states.

For maximum states, taxes from the sale of liquor count between 15 and 25 per cent of total tax revenue. Uttar Pradesh, Uttarakhand and Karnataka are some states in the country trust on liquor sales to carry in over 20 per cent of their annual taxable income.

States such as Punjab, Chhattisgarh, West Bengal, Telangana and Himachal Pradesh produce between 15 and 20 per cent of their revenue from liquor sales. On the other hand, Maharashtra, Tamil Nadu and Kerala, liquor tax revenue counts for under 10 per cent.

Gujarat and Bihar are the states which have banned the sale of alcohol, and as a result, the tax revenue doesn’t feature for these states. 

How much loss India suffered?

The lockdown began from March 25, and by some estimates, States in the country cumulatively were losing nearly Rs 700 crore a day since.

This accounts to around Rs 30,000 crore over the last one month and all. One of the principal reasons why alcohol was not brought under the purview of the GST rule was to allow states to recall a vital revenue machine. The lockdown has depressed them of this at a moment when they have needed it the most.

How do States earn from liquor?

The government allowed over 70,000 liquor shops to open under the strict lockdown guidelines, and as a result, many States will now be relieved to have a crucial factor of income restored.

Alcohol donates a substantial amount to the exchequers of all States, excluding Bihar and Gujarat. Usually, States toll excise duty on production and sale of liquor. Some states, for instance, Tamil Nadu, impose a VAT (Value Added Tax).

Some States also charge special fees on imported foreign liquor which considers factors such as transport fee and brand registration charges. 

Do you know, Uttar Pradesh, have forced a ‘special duty on liquor’ to gather funds for special drives, such as upkeep of stray cattle?

According to a report published by the Reserve Bank of India (RBI) shows that state excise duty on liquor books for around 10-15 per cent of Own Tax Revenue for maximum states.

Twenty-nine states and the UTs (Delhi and Puducherry) had planned a combined Rs 1,75,501.42 crore from state excise on alcohol, according to report of RBI. This was 16 per cent higher than the Rs 1,50,657.95 crore they had collected in 2018.