The Scotch Whisky Association (SWA), the trade body representing Scotch producers of the UK, has urged the British government to negotiate safeguards with its Indian equivalent under the ongoing trade talks to prevent further increase in excise and other taxes on alcohol at state level.
The organisation fears any import tariff liberalisation could be offset by increases in state-level taxes.
Responding to the inquiry by the International Trade Committee of the British Parliament into the ongoing free trade agreement (FTA) between the UK and India, the SWA has said in addition to import tariff, alcohol is also subject to “extremely high” excise duties and other taxes at state level.
“There is also concern in the industry that any liberalisation of import tariffs could be offset by increases in state-level taxes. The SWA would welcome negotiators seeking safeguards to prevent this, as well as working to establish frameworks and disciplines under the FTA to facilitate engagement with the states to prevent further increases in excise and other taxes,” it said.
Alcohol has been kept out of the purview of goods and services tax because it is the single-biggest source of revenue for many states.
Excise structures and tax burdens vary across states, with extremely high rates and complex structures.
India is the UK’s second-largest market by volumes for Scotch, importing the equivalent of 136 million bottles, worth £146.2 million, in 2021.
“Over 75 per cent of this is bulk exports, either bottled in India as Scotch whisky or mixed with locally produced spirits. This represents just 2 per cent of the market however, as India is the largest whisky market in the world,” the SWA said.
The SWA said securing an FTA that delivered greater access for Scotch into India would be “transformational” for the sector. Quoting a study by the Fraser of Allander Institute at Strathclyde University, it said for every additional £1 million in export of Scotch to India, 16 direct and indirect jobs would be created in the UK supply chain.
India imposes a 150 per cent import tariff on alcohol, consisting of a 50 per cent basic Customs duty and 100 per cent agriculture infrastructure development cess. The tariff applies equally to bottled Scotch and bulk Scotch imported for local bottling as Scotch and used as an ingredient in Indian spirits.
“Modelling suggests that even a phased reduction in the tariff to an end rate of 30 per cent over a three-year transition period would increase Scotch whisky exports to India by a cumulative total of £1.24 billion over the first five years. The economic opportunities afforded by tariff liberalisation for Scotch whisky mean that this must be a priority for the UK government in negotiations,” the SWA said in its submission.
India and the UK launched negotiations for the FTA in January last year with an aim to conclude talks by Diwali, but the deadline was missed due to change in leadership in the UK. Both countries have closed as many as 13 out of 26 chapters.
The eighth round of negotiations for the proposed FTA between the two countries is scheduled for March 20-24.