The Maharashtra government’s decision to slash excise duty on imported liquor from 300 per cent to 150 per cent has led to a comparison with petrol. If liquor can be made cheaper, asks the public, why not petrol? The layman also expects the state government to reduce the VAT (Value Added Tax) on petrol and diesel in line with the Central government’s excise duty cut of Rs 5/ litre on petrol and Rs 10/ litre on diesel. However, the Maharashtra government is reluctant to forgo any revenue from fuel, leading to taunts from the opposition that the Maha Vikas Aghadi is the ‘Madya’ (alcohol in Marathi) Vikas Aghadi government and that it is running an agenda of ‘pub, party and peg’.
The issue though is not as simple as it seems and the key lies in the tax structures of the two liquids, both of which are outside the ambit of the goods and services tax (GST) regime and both of which are rich sources of revenue for the Centre as well as for state governments. Alcohol was not brought under the ambit of the GST to ensure that state governments continue to have a strong inflow of revenue, other than what they get from their share of the GST. The cumulative levy on liquor can reach up to 500-600 per cent. No wonder the liquor lobby claims that the excise and VAT on liquor and beer fetch state governments nearly Rs 90,000 cr annually. For Kerala, the tax on liquor is its single largest revenue source.
Now, it must be remembered that the 50 per cent cut in state excise duty in Maharashtra is applicable only to imported liquor and not to Indian-Made Foreign Liquor (IMFL) or to Indian brands. Unlike other states, Maharashtra charges a hefty 300 per cent excise duty on scotch, making the imported whiskey costliest in the state. This has led to smuggled and spurious liquor, resulting in a revenue loss to the state. The tax stimulus is expected to boost revenue from imported liquor from Rs 100 crore to Rs 250 crore per annum. The state government also wanted a 100-fold hike in the licence fee of orchestra bars but the high court nixed it.
Just as states feed off alcohol, the Centre has been feeding off fuel. It kept hiking petrol and diesel prices despite the fall in the international prices of crude oil. Today, if petrol costs Rs 100, as much as Rs 65 go towards Central and state taxes. No doubt, state governments too benefit from high fuel prices but the lion’s share goes to the Centre. Opposition parties argue that the Centre’s action of slashing prices is a case of too little, too late; besides, it was a damage control exercise after the electoral reverses in the recent bypolls. Their stand is that they will slash VAT only after the Centre rolls back the excess taxes which were imposed earlier.
However, the Congress has broken rank and reduced the VAT on fuel in Punjab, Rajasthan and Chhattisgarh and has raised the same demand in Maharashtra too, where it is in a tri-party coalition. So far, Nationalist Congress Party (NCP) chief Sharad Pawar has refused to budge. He maintains that that reducing VAT on fuel is difficult considering the financial health of the state and has hit back by demanding the pending GST compensation from the Centre.
The RBI too has been urging the Centre to reduce fuel prices, saying that the common man is being squeezed because of the resultant inflation. There is consensus that poor households suffer more from petrol and diesel hikes as they tend to spend a larger share of their income to buy energy and energy services. The Centre claims that it is marrying a regressive tax on petrol and diesel with progressive redistribution of revenues amongst poor households but clearly the time has come to think of other solutions as well.