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Tuesday, Jun 10, 2003

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Karnataka set to cut duty on liquor

Boby Kurian

The tax reduction coincides with the setting up of a State Beverages Corporation - which would handle wholesale trade — aimed at checking the flow of `seconds' liquor sales.


THE Karnataka Government is set to slash excise duty on the alcohol beverage industry as the State gets ready to manage the super wholesale trade of liquor from July 1 onwards.

Industry sources said an announcement leading to a substantial drop in the duty structure was expected towards the month-end. The tax reduction coincides with the setting up of a State Beverages Corporation - which would handle wholesale trade — aimed at checking the flow of `seconds' liquor sales in Karnataka. A tax cut now is expected to play significant role in the success of the beverages corporation.

Karnataka, with potential to emerge as one of the largest Indian-made foreign liquor (IMFL) markets in the country, is widely considered as a `black hole' by liquor marketers as `seconds', defined as tax evaded liquor, outsell formal sales at a ratio estimated at 6:1.

The menace of tax evasion is more in IMFL leaving out others sectors such as country liquor or arrack and beer. The blame for this falls partially on the steep tax incidence, which is one of the highest in the country.

In going for a duty cut, the State Government seems to be learning from the experience of Andhra Pradesh which in the mid-90s went for significant tariff rationalisation to boost its fledgling beverages corporation.

The industry watchers said this played a crucial role in strengthening the Andhra Pradesh Beverages Corporation (APBCL) and resulted in cleaning up that market as it emerged from a brief spell of prohibition.

Currently, Karnataka's annual tax receipts from IMFL contribute roughly Rs 655 crore to the State excise coffers, which is far below the real potential on account of non-compliance.

Sources claimed that plugging of `seconds' sales could see this revenue surge to at least Rs 1,700 crore.

The country liquor or arrack chips in with revenues in excess of Rs 1,000 crore, while beer accounts for close to Rs 180 crore annually.

Meanwhile, Government sources refuted speculation that the administration may look at phasing out country liquor in the short-term.

The speculation in this regard suggested it was a necessary step to ensure progressive practices in IMFL business.

However, the Government sources said they were not looking at abolishing country liquor, as it would lead to substantial revenue loss.

``We also doubt whether the elaborate infrastructure in place for arrack can be replicated by IMFL immediately,'' sources added.

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