As Karnataka CM Basavaraj Bommai gets ready to present the state budget, the liquor trade in the state hopes that duties will not be hiked which could impact sales (Photo credit-PTI)
State liquor trade wants margin to be hiked to 20%
Spurt in illegal liquor sales sees traders going red
Excise collections had sobered in fiscal year 2020-21
Governments are huge entities. They require crores of rupees to manage the affairs of the state. In the ordinary course, revenue receipts take care of revenue expenditure (like salaries and regular/routine day-to-day expenses).
There are several avenues to generate revenue receipts. These include collection of road tax, stamp duty on property-related transactions, collection of professional tax and excise duty. Excise duty is levied on the sale of liquor products in a state. Karnataka is one of the states which derives a fair share of its revenue receipts by taxing liquor. Liquor remains the favourite go to tax tool for many state governments.
With Karnataka CM Basavaraj Bommai set to present Karnataka Budget-2022 the liquor trade in the state has a prayer on its lips.
A primer is due here. For the ongoing fiscal year, the Karnataka government is hoping to mop up ₹24,580 crore as excise. In fiscal year 2020-21 against the target of ₹23,332 crore the state could only mop up ₹22,700 crore. Liquor consumption was impacted in 2020-21 on the back of the first wave of the pandemic. “We certainly don’t want the tax on liquor to be increased. There has been tax buoyancy from this source,” says a worried V Govindraj Hegde, general secretary of the Federation of Wine Merchants Association of Karnataka.
Price hike does pinch the pockets
A closer look at the Karnataka government’s excise department data indicates that a hike in duties doesn’t necessarily translate to higher excise collection. In fact, the excise collection in 2020-21 at ₹23,332 crore witnessed a muted 8.1 per cent rise. At 8.1 per cent, the state witnessed the fourth lowest growth rate since 2016-17 with the best year being 2018-19 when excise collections rose in double digits registering a growth of 11.12 per cent.
A liquor trader who didn’t wish to be quoted said that if the Karnataka Budget-2022 doesn’t hike the taxes that is as good as reducing the rate of taxes.
Both Andhra and Maharashtra for instance have announced a reduction in the duty on blended scotch and premium whiskies. Sources say that some of the districts in Karnataka like Vijayapura and Belagavi have witnessed instances of residents venturing into Maharashtra to raise a toast.
Similar instances have also been reported from Ballari and even Chitradurga (close to Andhra). Such a move hits the sales of liquor outlets in Karnataka.
Traders shudder and recall how the additional excise duty was hiked twice in the span of months in CY2020 when there was a six per cent hike followed by a stiff 25 per cent hike literally within weeks of the first wave of the pandemic. Thankfully enough, CY2021 didn’t experience this kind of aberration.
Menace of illegal sales Another issue which liquor trade in Karnataka believes needs to be resolved on an urgent basis is the menace of illegal sales. Several times liquor is purchased from the authorised outlets and vended at restaurants and small-eateries (which don’t have the excise department permission for selling liquor).
There is no estimate available though some claim that this could be as much as a fifth of the annual collection! Demand for higher margin Another wish of the liquor trade is to see its margins rising. Currently it is 10 per cent but trade wants this to be hiked to 20 per cent.