GST dept proposes addl tax on liquor to mop up more revenue


By Surendra P Gangan

Mumbai: In a recent meeting convened by deputy CM Ajit Pawar to discuss additional revenue sources in the wake of the rising fiscal deficit, the Goods and Services Tax (GST) department proposed a hike in the tax on liquor served in restaurants and hotels below the grade of 3 stars. Such places currently pay 5 percent, and the proposal is to up this to 10 to 15 percent, which will help the government increase revenue by ₹300 to ₹600 crore annually.

The GST department, which mopped up a revenue of ₹2.02 lakh crore in 2022-23, stated that since 2011, there had been no tax hike on liquor served in restaurants and hotels below the grade of 3 stars, and thus there was scope for an increase. “Such hotels pay 5 percent value-added tax (VAT) on the sale price of the liquor they serve,” said an official from the finance department. “Hotels of 4 stars and above pay 20 percent. However, liquor sales in high-end hotels are very low compared to those in the 3-star-and-below category.”

The GST department and state excise department, however, are not on the same page. According to the excise department, there is big-time evasion of the tax levied on liquor sales. “At 5 percent, the tax collection should be at least ₹700 crore a year, as we have 18,000 bars, restaurants and hotels,” said an excise officer. “Of ₹300 crore, ₹120 crore comes from star hotels, which are just 150 across the state, because evasion at their level is comparatively less. We have been demanding that the 5 percent VAT be waived completely, and excise duty be increased by just 0.5 percent, which will increase our excise duty collection ₹650 crore. We collect ₹12,000 crore excise duty from 90 liquor manufacturers in the state. If VAT is removed, the unnecessary control of one more department will go away, making the system industry-friendly.”

The excise department collects excise duty at the manufacturing units while VAT is collected on the sale of liquor at restaurants and hotels by the GST department.

The department has stated that due to the reduction in the price of petrol by ₹5 a litre and diesel by ₹3 a litre immediately after the Shinde government took over, the state exchequer is sustaining an annual loss of ₹5,500 crore. Similarly, the reduction in tax on natural gas from ₹13.5 percent to 3 percent by the MVA government in April 2022 led to annual losses of ₹800 crore. The reduction of tax on aviation turbine fuel from 25 percent to 18 percent in April 2023 led to annual losses of ₹300 crore. The department has proposed that the state government can think of a rise in VAT on petrol and diesel, as a hike of Re 1 on petrol earns ₹500 crore and Re 1 on diesel ₹1,000 crore annually.

The GST department has also proposed to increase the tax on gold and gold jewellery from the existing 3 percent to 4 to 5 percent. It has also proposed uniformity in tax at 12 percent on fabric and readymade garments. The department has proposed that the revision be piloted through a proposal to the GST Council.

A finance department official, however, added that these are just proposals by the GST department, and no decision has been taken by the government on them.

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