The Hindu Business Line : Plea to rationalise tax on liquor in Kerala

WHILE it is conceivable that the liquor trade should become one of the largest generators of revenue, State Governments must resist the temptation to overkill and cook their own goose.

The tax-at-will policy will only adapt the trade to being the treasury's choice as the first and/or the last resort, says Mr R. L. Rajah, Chief Operating Officer, India and South Asia, Guinness UDV.

"All State Governments are making handsome revenues from the sector. But unbridled taxation will only lead to higher and still higher prices for the consumer. He will have sufficient reason to downgrade, leaving the doors open for illegal brewers and bootleggers and attendant social problems. Not to speak of revenue loss to the Government. The only way out is to make the brands affordable for the consumer."

The biggest drawback is the hefty 36 per cent margin charged by the Kerala State Beverages Corporation. In open markets, distributors get a margin of only five to seven per cent (seven per cent in Mumbai/Maharashtra; eight per cent in Kolkata/West Bengal and five per cent in Delhi). It is high time the State Government looked at these issues and rationalised the tax structure. This will only help beef up its revenue position.

In Karnataka, the State Government rationalised the taxes on IMFL two years ago. The revenue turnover has since improved by 300 per cent. "I'm not saying there's a boom in our business. The jump in turnover can instead be attributed to substitution of grey channels and conversion of the counterfeit to legitimate sales. So, merely legitimising sales can help seal a large hole in the tax regime," Mr Rajah said.

The industry is thankful to the Kerala Government for having taken the first step towards this direction and bringing out a "slab based" duty with effect from April 1, 2004 onwards. But despite this, premium brands continue to be beyond the reach of the common man.

Research shows that consumption of imported scotches is very high in Kerala. High prices have resulted in the lack of their availability through authorised channels. Currently, bootleggers and counterfeit manufacturers have appropriated this portion of the business to themselves bleeding the State Government coffers in the process.

The Kerala market, which accounts for an annual turnover of 8.5 million cases in hard liquor and spirits, is too big to ignore. Besides, the State boasts one of the highest disposable levels of income. But higher taxes have ensured that only cheap stuff gets sold here. Something that Guinness UDV is not into.

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