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Liquor Revenue

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May 05, 2020

Why in news?

Restrictions of liquor stores have been eased around the country.

How do states earn from liquor?

  • Liquor contributes a considerable amount to the exchequers of all states and Union Territories (UT) except Gujarat and Bihar.
  • Generally, states levy excise duty on manufacture and sale of liquor.
  • Some states like Tamil Nadu also impose VAT (Value Added Tax).
  • States charge special fees on imported foreign liquor; transport fee; and label & brand registration charges.

What does the RBI report say?

  • The ‘State Finances: A Study of Budgets of 2019-20’ report was published by the Reserve Bank of India (RBI).
  • It shows that state excise duty on alcohol accounts for 10-15% of Own Tax Revenue of a majority of states.
  • State excise duties on liquor are the second or third largest contributor to the category State’s Own Tax revenue.
  • This is the reason why states have always wanted liquor kept out of the purview of GST.
  • RBI report shows that in 2019-20, the 29 states and the UTs of Delhi and Puducherry had budgeted Rs 1.75 lakh crore from state excise on liquor.
  • On an average, the states collected about Rs 15,000 crore per month.
  • Before the Covid-19 broke out, it was expected to cross Rs 15,000 crore per month in the current financial year.

Which states collect the highest amounts in this form of revenue?

  • During the financial year 2018-19, the five states collected the highest revenue from excise duty on liquor.
  • They are Uttar Pradesh (Rs 25,100 crore), followed by Karnataka, Maharashtra, West Bengal and Telangana.
  • For amounts collected as VAT and special fees on import for foreign liquor, state-wise figures are not available.
  • One reason why UP collects the highest is that it levies only excise duty on manufacture and sale of liquor; does not collect VAT separately.
  • States such as Tamil Nadu collect VAT separately; whose VAT collections do not reflect in the excise duty collections.
  • With Bihar and Gujarat having prohibited liquor, Bihar had ‘nil’ revenue from liquor in 2019-20, while Gujarat’s revenue was negligible.
  • Andhra Pradesh too announced prohibition last year; however, sale of the liquor has been allowed with “prohibition tax”.

On what items the state excise is levied?

  • State excise is levied mainly on liquor and other alcohol-based items.
  • Revenue receipts from state excise come mainly from most liquor types; Medicinal and Toilet Preparations with Alcohol, Opium etc; Opium, Hemp and other Drugs; etc.
  • Besides, a substantial amount comes from licences, fine and confiscation of alcohol products.

What are the other sources of revenue for the states?

  • The states’ revenues comprise broadly two categories: Tax Revenue and Non-Tax Revenue.
  • Tax revenue is divided into two further categories: State’s Own Tax Revenue, and Share in Central Taxes.
  • Again, Own Tax Revenue comprises three principal sources:
    1. Taxes on Income (agricultural income tax and taxes on professions, trades, callings and employment);
    2. Taxes on Property and Capital Transactions (land revenue, stamps and registration fees, urban immovable property tax); and
    3. Taxes on Commodities and Services (sales tax, state sales tax/VAT, central sales tax, surcharge on sales tax, state GST, etc.,)
  • According to the RBI report (2019-20), state GST had the highest share, 43.5%, in states’ Own Tax Revenue.

 

Source: The Indian Express

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