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Posted: Monday, 09 August 2021 17:38

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Whopping Jump in Tax Revenue assured for Delhi Excise in 2021-22

Aug 09: The eBids from the 32 new zones of Delhi and other receipts under the New Excise Policy are expected to fetch a whopping Rs. 10,000 Cr in the government kitty, even as several petitioners have filed a case in the Delhi High Court which has ruled that the process initiated by the government is subject to its judgement, writes Subhash Arora who feels that the government has beautifully skirted around Article 47 of the Constitution to augment its revenues by 35% that might result in higher prices for the consumer, wipe out small traders and shift control to the rich and powerful cartels

Article 47 of the Constitution of India says, ‘The State shall endeavour to bring about prohibition of the consumption except for medicinal purposes of intoxicating drinks and of drugs which are injurious to health.’ India has 28 States including the wine producing states Maharashtra and Karnataka. There are 8 Union Territories including Chandigarh and Delhi, which are considered as States. Keeping this objective, all the States were given complete freedom in deciding their policies and pricing on alcohol to encourage them to introduce prohibition. This privilege included excise duty and VAT as alcohol is not a part of the GST regime-these products are considered cash cows.

After years of tinkering the policy, Delhi has gone for the kill, explicitly declaring a couple of months ago that that it proposed to maximise the tax revenues on alcoholic products in the 2021-2022 policy which aims to reform the city’s liquor business by improving user experience, cleaning up the liquor mafia and eradicating pilferage. This has been achieved in a short span of 2 months.

The government shops have been banned from selling alcohol; since a government report had pointed out they were even more corrupt than the private shops.

The Delhi government’s excise policy claims to be a huge success by surpassing all targets of revenue generation from the bidding process. The policy is set to take up excise revenue figures to Rs. 10,000 Cr. (Rs. 100 billion) in the first year of implementation including Rs. 650 -1000 Cr. from excise duty, import fees, VAT and other licence fees. This is a new record, according to a report yesterday in HT. This compares very well with a total of Rs. 6,358 Cr. collected during 2019-2020, during which a total of Rs. 42.500 Cr. were the total tax-based receipts.

Besides resulting in an increase in revenues of 30-35%, the government sources claim it will reform the city’s liquor business by improving user experience, cleaning up the liquor mafia and eradicating tax pilferage. Despite their constant tweaking of policies every year, the growth in excise revenues has been only 5-7% in the recent years.

The government has achieved the increase by dividing the city into 32 zones with no more than 2 bids allowed from each bidder. The reserve price for each zone has been over Rs. 200 Cr. But in general the eBids have been over Rs. 300 Cr with NDMC recording a huge premium of 45% at Rs. 315 Cr. The airport zone fetched Rs. 235 Cr. against a Reserve Price of only Rs. 105 Cr! The 20 auctions on Thursday and Friday, have already fetched Rs. 5,300 Cr. A zone-wise average revenue of around Rs. 265 Cr each is expected from the bidding of the remaining 12 zones, totalling Rs. 3,180 Cr. Those winning the auction will be given L-7Z or L-7V licences, which are meant for retail sale of Indian and foreign liquor respectively.

The government claims that the tender process will bring in more players into the market, thus preventing instances of cartelisation which happened after the Haryana monopoly was abolished. They seem to have turned a blind eye to the cartelization that is reportedly still rampant in the adjoining city of Gurgaon in Haryana.

One of the positive features of the policy is to now allow sales at less than the MRP. Each zone will have at least 27 liquor vends, all allotted to one bidder. At least on the face of it, the government has shut shop for dozens of traders who have been in the liquor retail for decades with the proverbial stroke of the pen. At best, they will become sub-contractors at less-than lucrative terms.

The Delhi government had floated tenders for new licensees on June 28. Following the tendering process, the 32 zones were put up for auction. 12 zones were cancelled as there was none or only one bidder. Bidders from Delhi, and even UP and cities like Hyderabad and Bangalore bid for the zonal auction. This is expected to bring more innovations, experience and diversity in the retail liquor sector in Delhi, according to government sources.

Case in High Court

Several cases and PILs have been filed by several individuals and associations against the new policy and are under the lens of Honourable Delhi High Court which is hearing the matter and clarified on Friday that the New Excise Policy 2021 will be subject to the outcome of the petitions. The Court refused to give an interim order of stay though.

The petitions allege that the Policy restores the old Zamindari system which was abolished by the Constitution and facilitated a monopolistic cartel. It also alleges that it debars the non-super-rich, thus killing the competition. (Although the small traders had reportedly also formed their own cartels to extract maximum discounts but never passed them to consumers.)

The government still appears to be silent about the issuance of L-13 license that entitles the retailer to carry out home delivery. Similarly, there has been no talk about sales of wine and beer in department stores, which is all the more irksome as Maharashtra is considering allowing sales of wine in all department stores apparently without any license fee and charging only 10% additional tax on MRP in lieu thereof.

There is general feeling in the trade that the business will move into the hands of super-rich, powerful people and that the wine and liquor is expected to become even more expensive and might even have some negative impact on its consumption. It would bring a cheerful smile on the faces of the government and the bureaucrats who can then claim their contribution to reduced alcohol consumption and by treading the path suggested by the Article-47 of the Indian Constitution, while unabashedly filling their coffers- assuming that the Honourable Delhi High Court lets them have their way. 

Subhash Arora

 

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 Comments:

 
 

Ashwin Rodrigues Says:

 

The Goa model is the best. Low licence fees for retail and on premise leading to umpteen number of outlets and healthy competition. Basically it's like selling any non-alcoholic product. Market forces determine the number and location of outlets. Excise is collected at source so revenue leakage non-existent, unless you peg your duties higher than the neighbouring states. Moral of the story - the more rules you make the more you have to regulate. It's a never ending cycle

Posted @ August 26, 2021 20:00

 

Subhash Arora Says:

 

Crux of the problem is that wine is lumped with Liquor!! Half of the problems would be resolved if this is done. Of course, the general public needs to know that wine is not the same thing as Spirits. Arora

Posted @ August 10, 2021 20:00

 

Ashok Chandak Says:

 

Whatever Governments do we don't have any problem. Just keep wine out of liquor list. And if not, charge taxes on wines on the percentage of alcohol basis instead of on total volume

Posted @ August 09, 2021 16:10

 
       
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