 For years the wine and liquor industry had been optimistic about GST taking over the plethora of other taxes and make the taxes and prices uniform in all states, but the optimism was aborted when the talks by the ruling party starting fermenting. The states said no to liquor, their cash cow for increasing taxes at will, petroleum industry (lubricants and some other allied accessories, are still in the GST regime). For similar reasons electricity was kept outside the purview.
Article 47 of the Constitution of India gives the power of pricing and taxation for alcohol to the States to strengthen their hands for declaring prohibition. But the governments have been so dependent on the revenue collection from this stream that apparently the States were not prepared to even talk about GST unless these categories were precluded.
So much for One Nation, One Tax, One Market theory! (What started as a single tax regime has been changed to 4 different rates from 5,12,18,28 and 40% if one does not include a limited categories that have been kept in the 0% category).
Keeping the selfish interests apart, it makes a lot of sense to bring wine and liquor under GST. Each State acts like an independent sovereign country and has its own agenda in taxation and wants to milk these categories. There is a school of thought that I don’t subscribe to, and that is that this gives the powers to the States to continue indulging in corruption at various levels that seems to be the norm today. To me, it is downright mockery of the Constitution and rather making any efforts to reduce alcoholism as the problem that it is, they States unabashedly use the power to increased taxes and the resulting corruption due to non compliance.
One can only hope that the Central Government had chosen the option to make GST accepted and will become rational and move towards the ‘One Nation, One Tax’ regime by the by.
In the meantime there are problems like the Input Tax Credits which need to be addressed. All India Wine Producers Association (AIWPA) did make efforts to get it included but non inclusion was already a fait accompli when they started murmuring. So their main concern for the Indian wine industry was whether the industry would get input tax credit?
Opinions seem to be divided. Yatin Patil President of AIWPA says, ‘if not compensated, it would translate into increase in costs, Our margins are already under pressure, this might have been a bitter pill to swallow. Fortunately, we are informed that the state government is coming out with a notification whereby input credit would be passed on. So on this count there should be no negative impact.’
A visibly Yatin added ‘the proposed 28% GST on sales in restaurants in five star hotels would have hurt us badly, but again this being favourably reduced to 18% would ensure that wine sales in five star hotels would not be impacted. All in all it’s going to be neutral for the industry.’
Sumedh S Mandla, CEO of Grover Zampa Vineyards is also disappointed that the industry has been excluded from GST and says, ‘The alcobev industry was hopeful that GST would bring some rationality to state policies and ease the process of conducting business. Unfortunately, this was not to be. The alcobev segment is not included under GST. So we have to wait and watch for some other form of potential relief.’
Explaining the dilemma, he says," Alcoholic beverages come under state jurisdiction and every state has its own excise policy. This makes it difficult for any Indian wine producer or importer to conduct business. Varied excise duties and other local levies complicate matters. Sales Tax or VAT can vary between 20% and 150%, depending on the State where one is operating. Thus the consumer price for a wine could go up by as much as 50% due to policy variance within different states.”
He further adds, “However, introduction of GST has indirect implication on us. Our input cost especially in packaging material and service tax will go up. There is also lack of clarity for Sales tax set off against input credit that we were getting earlier. This will compel us to increase the price of our wines." Interestingly, most States barring Karnataka do not allow the price to be changed in the middle of the year. The producers might just be obliged to bear the brunt of these increases.
The best and most honest reply was given by Arun Kumar, Director Aspri Spirits and Wines who had a big discussion on the subject of GST and said, ‘on the GST front we are yet trying to ascertain the operational impact and one would be able to get a clearer picture only when transactions go through- post the 01st of July.
The whole nation will be watching- the midnight mass on TV and then start working under the new regime-the GST regime, that is. Like most new ideas, it will take some time to assimilate and understand the reality. Till then, have a glass of wine as you watch the proceedings in the Parliament House and say Jai Ho! To wine!!
Subhash Arora |