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I have been often asked during the last several years what the impact of GST would be on wine and beer. This was when the talk of GST had started but nobody expected exclusion of liquor and petroleum products. My response used to be that it would be good for the industry simply because the headache of different pricing and policies in different States would finish. One country, one tax regime was the mantra for pushing the reform in the first place.
As it turned out, the question became only theoretical . States refused to budge or agree to even discuss GST until the Central government agreed to their demand for excluding petroleum products and alcoholic beverages, the cash cow for funding State budgets. The Government had to take a reconciliatory approach and gave in to their demand. While the whole country is driven by GST, it will be business as usual for the wine industry; unbridled excise and sales policies mandate so charitably awarded to the States by the Constitution under Section 47 purportedly to use them as leverage to bring about prohibition but the States have been using them unabashedly to fill their coffers.
In the current tax regime, wines and other alcoholic beverages have to pay VAT-at first point. The incidence of this is 20%. In Maharashtra, 16% is refunded supposedly within one year. The VAT paid on various inputs can be set off against the final VAT, indeed same as for every other product encountering VAT. With GST coming into play, the wineries will continue to pay this VAT but since most inputs are under GST (grapes are an exception) the set-off may not be available. The costs of material will thus go up (unless the government plays a rational role and compensates producers through some well-laid out mechanism. Packaging and other inputs except grapes are usually 40-50% of the total material input costs, according to producers. With the GST on these products varying from 5%, 12% and 18%, the likely effect will be around 4-5%.
According to Deepak Bhatnagar, President of Sula Vineyards, they have conducted a finance study which suggests that their cost of input would go up by Rs. 1.25 to 1.5 crores. Yatin Patil, President of All India Wine Producers Association estimates the increase to be around 5% of the current costs. Both of them feel that it may not be possible to pass on the costs to the customers, partly because it’s not easy to change prices mid- term (the financial year is April-March) though Maharashtra allows a change mid-term. But with the market condition being quite fragile due to various factors like the market buckling under due to the Supreme Court judgement, it may not be possible to pass on the increase and will affect the bottom line directly.
The biggest negative factor is that the industry was hoping to come under ‘one Country - one price’ policy at the national level. The sales policies of different States are cockeyed and skewed due to different perceptions of every State and it is nightmarish to deal with29 states and 7 union territories- including States like Gujarat where there is prohibition but law allows consumption under certain circumstances.
Thankfully, wine importers do not face this problem for the moment. As Arun Kumar, Director of Aspri Spirits and Wines, says, ‘for once we have not been touched since there are no inputs where GST has to be paid for imported wines’. But like many other importers he is keeping his fingers crossed. ‘You never know, the government may come up with some excuse to raise the input costs to have a parity between the Indian and imported wines,’ he says with a wry smile.
Subhash Arora |