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Choose GST or Cut Red Tape, But States Must Agree on Online Sale of Liquor in These Desperate Times

People stand in a queue to buy liquor outside a wine shop during an extended nationwide lockdown to slow the spread of the coronavirus disease (COVID-19). (Reuters)

People stand in a queue to buy liquor outside a wine shop during an extended nationwide lockdown to slow the spread of the coronavirus disease (COVID-19). (Reuters)

The issue with liquor sale online is different states levying different excise duty, which makes it extremely tough for the state to track purchase from one state and it being sold in another.

Suyash Srivastava
  • Last Updated: May 13, 2020, 12:26 PM IST
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“Only in desperate times that we see the government taking drastic measures to bring a profound change in policy, and that is exactly what may work in favour of the lobbyists asking to legislate the online sale of liquor and its home delivery in India.” - Supreme Court

The Supreme Court on May 8 disposed a Public Interest Litigation seeking directions to declare direct contact sales of liquor as unconstitutional and void, asking State and Centre to consider online sales of liquor to maintain social distancing and further avoid the spread of Covid-19. The court declined to pass any adverse order in the petition and hinted the government to consider sale and purchase of liquor online.

Furthermore, the Madras High Court directed closing of Tamil Nadu State Marketing Corporation shops and permitted for online sale of liquor in the state until May 17— in a petition against flouting of social distancing norms in Tamil Nadu post re-opening of liquor shops.

The online liquor segment as of today remains without any provision — even after years of hard lobbying from the companies and International Spirits and Wine Association of India. On May 7, the Delhi government came up with their own desperate bid to maintain social distancing amongst Delhiites amidst lockdown by launching an e-token service to buy the liquor.

While the State governments have not done much about legislating the online liquor segment until now, they are now compelled to bring in drastic measures for alcohol sales in their State in order to proliferate their own revenue during lockdown.

The service is not online sale of liquor or home delivery, but it only allows an individual to apply for e-coupon with his name and phone number. Thereafter, the e-coupon is sent to the person’s registered mobile number with allotted time for pickup of liquor from any nearby shop. While the state governments have not done much about legislating the online liquor segment until now, they are now compelled to bring in drastic measures for alcohol sales in their state in order to proliferate their own revenue during lockdown. Hence, an endeavour to start exploring the liquor sale online.

Now, the question arises why the state governments put a ban on liquor sale in the first place during lockdown and not categorised it at the outset within essential commodities permitting its sale online? The alcohol sales contributes an estimated revenue of Rs 15,000 crores per month towards the states and these numbers practically disappeared after the start of lockdown.

With economy virtually at halt — the states have been looking at ways to generate more revenue to support its scheme to fight against Covid-19. The everlasting demand for alcohol soared when liquor shops re-opened and the alcohol sale seemed the most viable solution for states to bridge the gap of revenue losses that they had been incurring. Therefore, states such as Maharashtra are now mulling over the online sale and home delivery of liquor.

In a report published by Reserve Bank of India — State Finances: A Study of Budgets of 2019-20, it was found that the state governments generate up to 10-15% of their total revenue from the excise duty on sale of liquor. This comes as no surprise as the Union Territory of Delhi has now put up to 70 per cent increase on retail prices of alcohol as coronavirus taxes after it re-opened the liquor shops.

The key issue remains is the archaic era lookalike and license raj regulations making it ever so complex to legislate liquor’s online sale.

With increase in liquor demand and additional taxes these revenue numbers are to only see a hike and make up for a generous portion of the state revenue losses during the lockdown. Some parts of India, such as the Union territory of Puducherry generates most of its revenue from the liquor sale.

So — what remains is the problem with online liquor sale with so many pieces coming together and various companies and organisations lobbying for it. The key issue remains is the archaic era lookalike and license raj regulations making it ever so complex to legislate liquor’s online sale.

In India, each of the 29 states have different excise duty and regulations for liquor with exception of Gujarat and Bihar, which impose prohibition on any sale of liquor. Liquor is a state subject under the Constitution of India which makes it up to the different state chief ministers to decide on the issue of regulating it and not the Centre. The issue with liquor sale online is different states levying different excise duty on liquor sale which makes it extremely tough for the state and its police to track the purchase of liquor from one state and it being sold in another. The states, therefore, risk losing of revenue to the adjoining state levying lower excise duty.

Exclusion from GST creates impediment for the entire liquor industry and put unnecessary burden amongst manufacturers to traverse through complex inter-state sales of liquor.

Further, the Goods and Service Tax is not applicable on “alcohol for human consumption” and it was intended by lawmakers to be this way for the state governments to maintain their own control and stream of revenue. For instance, Tamil Nadu charges in addition to excise duty charges Value Added Tax (VAT) on liquor sales, while other States include taxes such as transport fee and label and brand registration charges on foreign imported liquor.

Now, with lockdown in place and continued adherence to social distancing norms in foreseeable future, these revenue numbers are to see an all-time low, unless “online liquor sale and its home delivery is legislated”. In 2018, there were reports that Maharashtra and Karnataka governments were considering to allow sale of online liquor, though, that momentum died down quickly.

A good visible solution for States to legislate the online liquor sale and its home delivery would be to come under purview of GST and agree upon with other states on the highest tax rate applicable.

Exclusion from GST creates impediment for the entire liquor industry and puts unnecessary burden amongst manufacturers to traverse through complex inter-state sales of liquor. The provisions makes it almost impossible for new players to gain entry into the market, thus, also giving boost to cartels and thriving illegal liquor sector — costing exchequer not only revenue but loss of thousands of lives.

An alternative solution, would be to cut down red tape, and unanimously agree upon with their adjoining States (or all States coming together) — common set of norms and regulations such as excise duty, license to transport liquor, and brand & label registration, etc.

For instance, states of Haryana, Delhi and Uttar Pradesh can come under “MoU on trial basis” and agree upon the common rate of excise date and other transport charges. If the states see more profitability and transparency through this method — they can work upon a more permanent solution mentioned above. This would definitely require some doing by states but a less complicated tax structure will give the required confidence for liquor industry to grow, and help states, manufacturers and selling platforms generate more revenue.

With recent change in behaviour amongst Indian alcohol consumers and the trending demand of online liquor delivery, it is safe to assume that half of the present liquor revenue of India which is around $17.5 billion can easily craft towards the online liquor market — once it is legislated.

The technology has drastically changed in the last couple of years and logistics are no longer a challenge for the home delivery of liquor. Most people use smartphones in India and online platforms such as Zomato have been at the forefront lobbying to make the most of this opportunity. In USA, the online sale of alcohol, including beer, wine and liquor have risen by 32.7 per cent in 2017, and according to Nielsen it soared to over 243 per cent during the present COVID-19 lockdown.

Further, the online alcohol selling companies have had a healthy competition in the USA giving an overall boost to its economy. Companies such as Wine.com, Drizly Inc., Safeway and Walmart have created a sustainable space for USA alcohol online purchasers. In the United Kingdom, liquor vendors selling online have seen a sharp increase in the liquor purchasing with up to 500 per cent increase in sale during the present COVID-19 lockdown. Further, in a 2018 study it was found that woman in the USA accounted for 55.7 per cent of all the alcohol purchased online — showing positive and revolutionary trend growth amongst women liquor online buyers.

Whereas, India is the third largest liquor market in the world with a present value of $35 billion and further to see an exponential growth of 22 per cent by 2022 — with market value reaching around $41 billion. With recent change in behaviour amongst Indian alcohol consumers and the trending demand of online liquor delivery, it is safe to assume that half of the present liquor revenue of India which is around $17.5 billion can easily craft towards the online liquor market — once it is legislated.

Further, online sale of alcohol promises to make a sustainable and safe market for women liquor buyers in the country as well — who are usually obliged to ask their male counterparts to purchase liquor for them from claustrophobic quintessential liquor stores — often too unsafe for them to visit. The online liquor delivery platforms also promise to bring social change by reduction in cases of drink and driving and ensure responsible drinking amongst citizens of all age.

Disclaimer:Views expressed are personal. This article first appeared in ORF.


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