States impose higher taxes to raise revenue

After 40 days, the government has decided to heave the lock down in some areas where no COVID-19 cases exist. The decision comes with some additional norms. On May 4, liquor shops were opened across the country. Currently, all states are struggling for funds due to lock down measures taken to overcome this pandemic. This has resulted in halt of all economic activities. In terms of revenue, taxes on alcohol play very crucial role in earning tax revenue. Around 10-15% tax revenue is earned from alcohol and 15-20% from petroleum products.

How much tax is increased?

To raise revenue, the state governments has increased the sales taxes on liquor and excise on fuels. Almost 13 states have increased taxes. Delhi has put a 70% tax on all types of liquor. The Andhra Pradesh government has increased the tax to 50% on liquor. Earlier, the tax rate was 25% in Andhra Pradesh which has now increased. Rajasthan and West Bengal have also increased the tax on liquor by 15% and 30% respectively. Fuel prices are also hiked by the states. Rajasthan had already increased prices on 22nd March by Rs. 2.2 per litre. The prices was raised again by 0.5-1.1 per litre. The Delhi government raised VAT on both diesel and petrol to 30%.

Importance of liquor sale to states:

Alcohol sale support states to earn more revenue than from other commodities. Revenues are earned from taxes on commodities like country spirits such as malt liquor, country fermented liquor, foreign liquor and spirits such as medical and toilet product which contain alcohol, commercial and denatured spirits, Indian made foreign liquor which are sold to canteen stores and other drugs which contains alcohol. Other than this, income is also earned by confiscating, licensing and penalties imposed on alcohol products.
According to the Indian ratings and research firm, more than 20% revenue of states and union territories such as Himachal Pradesh, Rajasthan, Meghalaya, Sikkim and Karnataka is earned only through sale of alcohol. Uttar Pradesh, West Bengal, Punjab, Madhya Pradesh, Telangana and Chhattisgarh earn 15-20 %. Andhra Pradesh, Odisha and Haryana earn 10-15% and rest of the states earn less than 10%.

Budget 19-20 report of RBI:

On an average, states shares 46% in total revenue receipts and the same is contributed to the central. According to this report, five revenue heads such as property and capital transaction tax, vehicle tax, Value added tax (VAT), SGST and state excise tax contribute 90% to the SOTR (state own tax revenue).

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