Alcohol to potentially increase in cost due to revised GST rates, government explains

In the evolving landscape of India's taxation system, one notable exception persists: alcohol. Despite the rollout of the Goods and Services Tax (GST) in 2017 and the recent push for GST 2.0, alcohol continues to be excluded from the unified indirect tax framework.

The decision to keep alcohol outside GST is primarily due to it being under State control for taxation, as well as the dual objectives of revenue security and social deterrence. This is significant, as the sale of alcohol is a substantial revenue source for many Indian states, accounting for 15%-25% of own tax revenues.

States like Tamil Nadu, Kerala, Punjab, and Haryana, for instance, generate high revenues from alcohol sales.

While the industrial use of alcohol will come under the new GST regime with GST 2.0, the consumption-level alcohol will remain GST-free. This means that consumers will face steeper prices on cigarettes, sodas, and processed foods, but alcohol packaged for consumption will remain untouched by the GST.

The special 40% tax rate, applied to a select few goods including "sin goods" and some luxury items, does not extend to alcohol packaged for consumption. However, services related to alcoholic beverages, such as bottling, packaging, transportation, equipment purchase and maintenance, advertising, and marketing, attract GST.

Under the latest GST push, "sin goods" like cigarettes and tobacco products will be levied a tax of 40%, an increase of 12% from the earlier tax of 28%. This tax hike is primarily to discourage public consumption and to generate more revenue.

The exclusion of alcohol from GST has been a contentious issue, with successive meetings of the Council avoiding discussion on the matter due to political resistance from States. The fear is that if alcohol is brought under GST, it would severely curtail the earnings of State governments.

The taxation of alcohol in India, a combination of State-level levies including excise duty, VAT, and additional cesses or surcharges, stands in stark contrast to countries like Australia and New Zealand, where alcohol is included under a single national goods and services tax.

In India, the taxation system for alcohol is a notable exception within the otherwise unified indirect tax framework under GST. As the debate on GST 2.0 continues, the question of whether alcohol should be included in the unified tax regime remains a topic of discussion and potential reform.

Alcohol to potentially increase in cost due to revised GST rates, government explains