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 Last year as the AAP Government took over, there were no major surprises but the Delhi Government now into its second year of control, has sought an increase in VAT from 20% to 30% on specified products that include alcohol which in turn includes wine. According to a Report in the Times of India, the Delhi government moved a proposal in the assembly yesterday to increase the upper limit on value added tax (VAT) from 20% to 30% on 11 items including liquor which encompasses wine under the excise and VAT classification. Other items included are PNG, CNG, kerosene, lottery tickets, tobacco and gutka. (One thought that gutka sales were already banned in Delhi! Editor)
The Kejriwal government, in its previous budget for 2014-15 , did not impose any fresh taxes or increase VAT but with a vast proposed budgetary outlay of over Rs 41 billion (€6 billion) for the current fiscal year, it is hoping to mop up all the resources it can, according to the Report.
If carried through, the government may or may not go full throttle and increase the VAT by 50% of the existing amount but will have the constitutional authority to increase within the limit approved by the Assembly which enjoys an AAP monopoly, as and when it wants.
This Delhi Value Added Tax (2nd Amendment) Bill seeks to make enabling provisions for levy of VAT in respect of goods enlisted in the Fourth Schedule at different rates instead of a flat rate of 20% with the condition that such tax rate will be higher than 12.5% (ie rate of tax applicable in respect of unspecified goods) but will not be more than 30%, according to the report.
Justifying the Bill and the various amendments on the grounds of creating conditions that encourage traders and improve and enhance the ease of doing business, Deputy CM and the Finance Minister of Delhi, Manish Sisodia said the government was aiming for a uniform tax structure with neighbouring states.
The fourth schedule applies to petroleum products other than liquid petroleum gas, piped natural gas, compressed natural gas and kerosene, besides aviation turbine fuel, spirit, gasoline and wax. Foreign and Indian made foreign liquor, country liquor, narcotics (bhang), lottery tickets, tobacco and gutka, unmanufactured tobacco, bidis and tobacco used in manufacture of bidis and hookah tobacco also come under this schedule. The VAT structure for these items is 20% as of now.
Akin to Sin Tax, it is surprising that the increase applies to petroleum products as well, making them substantially more expensive if imposed, but the reasoning being that they are currently available cheaper in Delhi than the adjoining states of UP and Haryana.
Any increase in VAT will be a big blow to the wine industry, already reeling from the exponential increases in costs in the supply chain-starting from the customs duty at arrival to the VAT at the final stage. Domestic wines are also suffering from the negative policies like heavy registration charged, sales by the case to the licensees etc. One may pin their hopes on Kejriwal being an enlightened Chief Minister who understands that wine is unlike spirits and heavy liquors and the use of wine on health grounds and beer for low alcohol, may be exempted from any increase sought. The VAT increase will have a cascading effect, particularly on the hotel price lists that have a mark-up of around 400-600% to start with.
Wine producers and importers have been working hard to convince the governments that wine should be delinked from alcobevs to begin with. As Arun Kumar, Director of Aspri Wines and Spirits says, ‘the Delhi government has in the recent past, tried to differentiate wine from alcohol and though they did not decrease the excise duty, they did issue special licenses at more affordable prices for retailers to sell wine and beer only. We hope that common sense will prevail and there will be no increase in VAT on wine, even though there is every possibility that the legislative move to increase the VAT from 20% to 30% will go through.’
The government is justified to raise taxes to balance the fiscal budget. But to do so they can think from the heart or the brain. On both counts it makes sense not to increase VAT on wine. The struggling industry is already on the verge of being crippled. Let us not drive the miniscule population from wine to whisky rather than trying to reverse the process, like what countries like China have been doing with big fervour.
Subhash Arora |