Liquor Prices to Reduce as Delhi Government Removes The Corona tax on Liquor

The overcrowding outside liquor shops during the COVID-19 pandemic has scared the authorities. But seeing the declining economy government decided to impose a tax on liquor to boost sales revenue. Back in the month of May, the Kejriwal government imposed a 70% corona fee on the MRP of different types of liquor. Due to this by the end of May, the excise department witnessed a total sales of Rs 234 crore from the sale of liquor.

However, the Delhi government has now decided to withdraw the special corona fee imposed at 70% on the MRP placed on the sale of all types of liquor in the capital. The order came into effect from June 10 onwards. Within 15 days after imposing this corona fee tax on liquor, the Kejriwal government earned around 110 crores from this tax.
Considering past trends alcohol consumption in India amounted to about 5.4 billion liters in 2016 which reached to about 6.5 billion litres by 2020. This steady increase in consumption of these beverages can be directly attributed to multiple factors including the rising levels of disposable income in people and a growing urban population among others.

Liquor Sales are a major revenue source

In India, several state governments either control liquor retail or wholesale distribution or both in general, and taxes often form a major source of their revenues. In FY20, the states in India earned a total Rs 1.75 lakh crore from excise, and liquor accounted for 10-12% of the overall revenue earned. And more than 50% of the retail price goes to the state and central governments in the form of VAT and excise duty. All states and Union Territories in India except Gujarat and Bihar, both of which have enforced liquor prohibition had been emphasizing over a quick end to the shutters down on liquor shops ever since the first phase of COVID-19 lockdown was announced. Liquor helps states earn more and revenue from liquor as a commodity doesn’t come solely from what is sold. VAT (value-added tax) imposed on liquor by states like Tamil Nadu have a special fee charged on imported foreign liquor, on transportation of liquor and on registration of liquor brands. These are again the secondary sources of revenue from liquor sales.

Alcohol market in India

The alcohol market in India consists of two main kinds of liquor – one is the Indian made Indian liquor or IMIL and the other one is Indian made foreign liquor or IMFL. This is in addition to beer, wine, and other types of imported alcohol. Country liquor or beverages account for the highest market share, while spirits take up the majority of the consumption market.
The beer and spirits segment saw subdued sales growth of 3% last year, disturbed by high excise duties imposed in some states and regulatory changes thereafter. Many big alcohol beverage companies said growth could decline further due to higher price tags. Soon after the government’s tax-hike announcements, the share prices of the country’s top three listed liquor firms that is United Breweries, United Spirits and Radico Khaitan fell by 6-8%.

More young consumers
Though the average per adult alcohol consumption was considerably low in India this year as compared to other countries such as the United States, heavy drinkers among young Indians were more prevalent. Men are more likely to drink than women by a large margin and are also more prone to episodic drinking habits. According to a research report, over 88 percent of Indians aged under 25 purchase or consume alcoholic beverages in India. This was despite bans on alcohol in some states across the country and some limitations on sales in a few others.

The apex body of the Indian alcoholic beverage industry – The Confederation of Indian Alcoholic Beverages Companies (CIABC) had been demanding the Delhi government to impose the 70% corona fee put on liquor sales for just the last week. The regulatory body had said the high tax rate was drastically affecting the sales of alcohol in the national capital. It wanted the government to bring down the cess to a more realistic and affordable level, but now the government has decided to remove it completely altogether.

The liquor manufacturers’ association had said that the sale of alcohol in Delhi dropped 58% compared to what it was last year. Though liquor sales of neighboring states like UP and Haryana seem to be boosting again as there was only a 10-15% additional tax imposed on liquor in these states.

Recently in a letter written to deputy CM Manish Sisodia, Vinod Giri, CIABC Director-General had claimed that the national capital’s alcohol business was slowly shifting to Haryana and UP due to differences in retail prices caused by tax imposition.

According to the Managing Director of Amrut Distilleries, the single malt maker in India, Rakshit Jagdale, the premium segments in the liquor industry, which was driving sales for the past four years, will decline. He further said that revenues will turn negative at this rate of an annual increase in taxes on liquor. This issue of imposing special corona tax will spread to other states, and that they fear a minimum of 30% increase by other governments.

Further Amar Sinha, COO of Radico Khaitan, strictly warned that the government may be preparing to lose out on a significant chunk of revenue as prices go up due to higher levies. According to him, liquor companies are also facing cost inflation issues, and the government should take a re look at the viability of manufacturers and their affordability along with the tax hikes.

The Kejriwal government had also introduced an e-token system for the sale of liquor to keep a check on the overcrowding of alcohol buyers at various shops. The Delhi government released a statement that in order to curb violations of social distancing norms, law and order issues this e-token system was introduced. It also launched a web link where people can go and purchase the e-token for buying liquor.

It is interesting to note that the shops under the Delhi Tourism and Transportation Development Corporation have sold liquor nearly worth Rs 86.5 crore between May 5 and 30 and further the Delhi State Industrial and Infrastructure Development Corporation recorded sales worth Rs 47.6 crore during that same time period.
After Delhi, West Bengal, and Andhra Pradesh raised the duty on liquor citing the COVID-19 crisis, many liquor companies fear other states will follow the same pattern, further damaging the industry already impacted by the lockdown and a reduction in discretionary spends.