No GST on Alcohol - Taxation of Liquor and related products

GST on alcohol is not charged, but various other taxes are charged. Governments across the globe tax liquor and related products. They also control and regulate sales. Owing to the local licensing fees and a range of state controls on the trade of liquor, the consumers often end up paying four or five times more than the price at a distillery.

The 29 states along with seven union territories in India have adopted different approaches when it comes to taxing and regulating liquor. For instance, the state of Gujarat has entirely banned trade and consumption of liquor since 1961. In contrast, Puducherry, the territory on the Coromandel Coast, earns most of its revenue from alcohol trade. Some of the states auction retail and wholesale licenses, while others have their own monopolies. Tamil Nadu is one state that has a monopoly on the alcohol trade and employs more than 30,000 people with over 6,000 outlets.

Latest updates

23rd July 2024
In the Union Budget 2024, the Finance Minister proposed an amendment to Section 9 to take Extra Neutral Alcohol used to manufacture alcoholic liquor for human consumption out of the purview of central tax. Similar amendments are also proposed in the IGST Act and UTGST Act. This amendment aims to set aside the prolonged confusion in the alcohol industry regarding the levy of VAT and GST by the State Governments.
*This will come into force once notified by the CBIC.

Taxation of Liquor

Even though liquor hasn’t been brought under the purview of Goods and Services Tax, it still falls under other taxes that contribute to its rising prices. These taxes are:

•    Excise Duty
•    VAT (Value Added Tax)

GST on Alcohol

GST on alcohol was not charged. Rather, the alcohol or liquor was never brought under the purview of GST regime primarily due to two reasons:

• To ensure that the State Governments continue to have a strong inflow of revenue (other than what they get from GST). It’s estimated that taxes on liquor and beer fetch the state governments nearly INR 90,000 crores annually.
• To keep the prices of liquor and beer high to limit consumption.

Costing of Liquor

In spite of GST on alcohol not being levied, the prices of liquor continue to rise after the rollout of Goods and Services Tax. This is because the inputs used to manufacture liquor were taxed at 12-15% under the VAT regime before GST. However, after the introduction of GST, most of the input raw material now attract 18% GST resulting in increased input cost. This rise in taxes on the inputs is passed on to the end customers. The other reason for the sharp increase in the cost of liquor is the applicability of GST on transportation and freight charges. Previously, transportation and freight attracted a service tax of around 15%. However, post-GST, they are taxed at 18%. Hence, even with no major changes in the VAT rates charged on beer or liquor, the cost of beer and liquor increased due to the increase in input taxes.

Industry Analysis

The liquor industry isn’t much supportive of the government’s decision to charge no GST on alcohol. Exempting liquor from GST has led to a rise in the overall cost due to the increased taxes on the inputs. Further, as the output is a tax-exempt product for the manufacturers they need to pay input taxes on inputs and then claim the refund of ITC (input tax credit) accumulated. This is a long process, which leads to the lengthening of the working capital cycle. Most of the liquor manufacturers believe that there’s no point in excluding beer from the purview of GST as the alcohol content by volume is only 5%. Most of the industry insiders wish that beer is brought under the GST regime. This will have a remarkable impact on the flourishing tourism industry.

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