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The article is written by Stuti Jain, from Vivekananda institute of professional studies. This article explains the tax increase on alcohol during COVID-19 situation.

Introduction

The first and the most crucial step that the Indian government took when it was at its initial stage of the COVID-19, was the countrywide lockdown of 21-days, which further got extended. The non-emergency services were closed. Alcohol, which was considered a non-essential product, was similarly disallowed during this time. Alcohol is one of the most revenue-generating sources that our governments have.

A strange dichotomy runs through the alcohol economy. 

The Delhi government, while easing up the lockdown restrictions, ordered the liquor shops to open on May 4, 2020. Wearing masks and the protocol of social distancing was an obvious compulsion. Along with the 2 basic requirements, several other protocols were ordered to be followed. 150 out of 180 Liquor shops(L6 and L8 only) were allowed to open in Delhi. Per customer, only 9 litres of alcohol and 1 beer case was allowed. The shops were allowed to open between 9 am to 6:30 pm, except in the containment zones. Despite the restrictions, huge crowds were witnessed at the shops, and the so-called “social distancing” restrictions were completely wiped slate clean and to control such a huge crowd. Many state governments ordered an increase in the taxes for liquor. For example, the Delhi government announced a 70% higher tax on MRP (special corona fee). Also, the Delhi government launched an E-token system in order to curb the crowd near liquor shops. The Karnataka government announced a hike in excise duty from 17% to 25%.

The reason why the alcohol tax is being increased

To fund the fiscal deficit of the government

There was an obvious perplexity as to whether the states should allow the liquor shops to open, or not, but the state governments seem to be keen to open the liquor shops. The states make a huge amount of revenue from liquor sales, so it became absolutely important to open liquor shops. Due to the lockdown and ban on the sale of liquor, the government lost a whopping amount of Rs700 crore per day. This was the main reason to start liquor sales. 

One of the biggest reasons to increase the alcohol tax is to boost up the revenues and to cover the lost amount.  Alcohol and petroleum are the two main products that are out of the ambit of GST and are the two main sources of revenue for the state governments. The demand for petroleum was at an all-time low because of the lockdown and closing of the factories. The only option the government had was to open the liquor stores and increase the tax. 

In Delhi, Mr Arvind Kejriwal ordered to stop all the government department related expenses, except the salaries of course, since there were not many options that the government had to curb the expenses. The government needed revenues to fund the migrant workers, in order to keep up with the much needed medical expenses in the hospitals, and research and development expenses as well. This extra tax was to be used to fight the COVID related expenses of the state.

To prevent overcrowding

According to “law of demand”, if the prices of a particular commodity go high, the quantity demanded falls. The theory is based on the assumption that the other factors like taste, fashion, income, price of related goods etc remains constant. After ordering the liquor shops to be open, the Indian Government witnessed something extremely shocking. The queues for buying the liquor were longer than the expectation of a reasonable person. Hence, the government had no other option but to increase the tax on MRP. When the people were seen violating the norms of social distancing, the state government had no options but to increase the tax, to reduce the overcrowding.

Control excessive drinking problems

Excessive drinking has its own health-related issues. Especially during the pandemic, it was important that the health of the citizens had to be kept in mind. Alcohol has an adverse effect on almost all the organs of our body. Moreover, the drinking weakens the immunity and hence reduces the ability to cope up with the COVID.  Increase in the price of alcohol leads to a decrease in demand, especially among the young drinkers.

Which states have increased the liquor taxes in a bid to raise revenue amid COVID-19 crisis

Taxes imposed in various States

  1. Rajasthan: The excise duty on Indian-Made Foreign Liquor (IMFL) bottles having prices below ₹900 were increased to 35% instead of 25%. For IMFL bottles having the price of ₹900 or above, duty increased to 45% instead of 35%.
  2. Delhi: Delhi government levied 70% cess on MRP as “special corona fees” on all categories of liquor. 
  3. Karnataka: Karnataka increased excise duty by 11 per cent. 
  4. Andhra Pradesh: The state increased 75% tax on liquor to fund the fight against Covid-19.
  5. West Bengal: West Bengal increased tax by 30%
  6. Punjab: The Punjab Made Liquor (PML) cost Rs 5 per quart or Rs 3 per pint more; the IMFL was to cost Rs 10 per quart more (and a proportionate increase in larger packaging) and Rs 6 per pint; beer prices were increased by Rs 5 for every 650 ml and wine by Rs 10 for every 650 ml. The ready-to-drink alcohol prices have also attracted additional excise duty of Rs 5 per bottle.
  7. Tamil Nadu: Indian Made Foreign Liquor increased by 15 per cent, the retail price of an ordinary variety of liquor (180ml) was being hiked by Rs 10 while the price of medium and premium varieties (180 ml) increased by Rs 20.
  8. Kerala: The COVID cess of 35% and 10% were clamped on IMFL and beer, respectively.
  9. Assam and Meghalaya: Assam and Meghalaya governments increased the excise duty on liquor by 25%.
  10. Uttar Pradesh: Increased the price of liquor ranging from Rs 5 to Rs 400 per bottle depending upon the size and the category of the drink. 

The revenue generated from the Tax on the liquor goes to the respective state governments. Liquor is out of the purview of Goods and services tax (GST). It’s the Excise duty and the Value Added Tax (VAT) which is still charged in the liquor. The reason as to why it’s still out of the purview must be the strong finance that it provides to the states. 

As per the State Finances, A Study of Budgets of 2019-20; RBI, following are the Indian states that collected the highest amount of excise revenue from the sale of liquor:

  1. UP- Rs 25,100 crore
  2. Karnataka-Rs 19,750 crores)
  3. Maharashtra-Rs 15,343.08 crore
  4. West Bengal- Rs 10,554.36 crore
  5. Telangana- Rs 10,313.68 crore

“Our loss is Rs 50 crore per day. Liquor shops were shut down from March 24 when the lockdown was imposed and they will remain shut at least May 3. Thus the estimated loss for 41 days is Rs 2,050 crore”, a senior excise official told on Wednesday.

WHO’s stance on raising alcohol prices

The World Health Organisation (WHO) clearly advocates in favour of tax or price rise of alcohol.

There were like plenty of speculations and rumours, according to which “alcohol kills COVID-19!” However, the WHO in its report clearly repudiated these rumours. According to WHO, alcohol consumption is associated with a range of communicable and noncommunicable diseases and mental health disorders which can make a person more vulnerable to COVID-19.  According to WHO, the majority of people who consume alcohol are younger people, who are sensitive to the price change. WHO in its report, even suggested the policy options which could be taken up by countries to reduce the alcohol consumption. Some of it includes providing incentives for non-alcoholic beverages or developing an effective enforcement system for the taxation of alcohol.

India definitely has followed a lot of the suggestions of WHO like reducing the retailing hours of Liquor, India has regulated the location of the alcohol outlets by decreasing the number of retail outlets that were allowed to open during lockdown etc., 

Is it fair to do so

96 middle-aged male patients suffering from severe AWS (Alcohol withdrawal Syndrome)  have sought help between 22 March 2020 and 11 April 2020 as compared to 79 cases between 01 March 2020 and 21 March 2020. One after the other, the states saw the perks of increasing the Alcohol tax but did not see what downsides it had. If we see such an increase from the perspective of the government and from the perspective that “we need to fund the COVID emergency”, yes it was fair to increase the tax. Also, it was equally important for the government to increase the tax so that the quantity demanded of the liquor stays under control. 

However, if we see the problems associated with it at the ground-level, we might have to give it a second thought. In India, about 5.2% of the population (more than 5.7 crore individuals) is affected by harmful or dependent alcohol use and need help for their alcohol use problems. During the lockdown, such a large amount of population would have been going through the withdrawal symptoms. These are the people, who, at no cost could stop consuming alcohol, no matter how much price the government increases. The extra financial pressure on these groups of people causes an extra amount of agony, mental health issues and consequently domestic violence. The problems related to domestic violence would definitely increase since the main reason behind it is “alcohol” and “financial constraints”. These day to day quarrels between the families regarding the financial condition have a massive mental impact on the children of the family, especially during such a difficult period. Since children don’t go to schools, they have no other options but to witness domestic violence. 

On one hand, the government is providing free ration to citizens so that they have less financial constraints, while on the other hand, the government is increasing the tax on liquor to fund itself through the same people. Doesn’t it look quite contradictory? It’s of no doubt that drinking is not an essential need of most of the people, but, what about the people addicted to it? 

Moving ahead, and thinking about the situation of the liquor suppliers is also important. With the ban of social gatherings, party clubs, weddings etc., and most importantly the closing of the liquor shops would have hampered their business. Above all this, the extra corona cess would have added to their plight.  A PIL was filed against Delhi’s “special corona fees”, claiming it to be arbitrary and against Article 14. However, the court clearly denied the interim stay against this increased tax. The CIABC also demanded that the cess should be “realistic and sustainable. Due to the increased taxation in Delhi, the demand for alcohol is shifting to Haryana and UP, which have comparatively lesser cess.  

Conclusion 

Also, the whole economy has come to a halt. COVID 19 pandemic has undoubtedly strained each and every person, be it mentally or financially.  Sitting at our homes, with no work and salary cuts has added to the muddle. The Financial stress that the government is going through during this time is quite massive, the pressure on the government-run hospitals, ration- schemes, the handling of the situation of migrant workers and so much more that we can’t even think of. Hence the government definitely needed a plan to suffice and handle its financial pressure. The step of “opening the liquor store” was quite a brave and a highly criticised decision that the government took, but increasing the tax on the liquor was the only option the governments had. Soon after the situation was under control, the respective governments without the delay removed the said taxes. 

References


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