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`Excise evasion posing problems to States'

Our Bureau

BANGALORE, July 12

EXCISE taxation poses one of the biggest challenges to policymakers and there are no easy answers to taxing potable alcohol, according to Dr Renuka Viswanathan, Karnataka Planning Secretary and Member Secretary, State Taxation Reforms Commission.

At a conference on Public Finance in Indian States, she said excise duties form the second largest revenue source to most States after general commodity taxes. But policymakers are constantly caught in the regulation-revenue conundrum while trying to arr ive at the best possible measures to check evasion. As a result, excise incomes fluctuate in State tax revenues.

In Karnataka, excise collection hovers around Rs 1,000 crore while there is an estimated excise evasion of Rs 3,000 crore.

Among the four southern States, tax incidence for IML exceeds 60 per cent and goes beyond 77 per cent in Karnataka.

Many States are considering bringing liquor under VAT and applying a special VAT rate of 25 per cent to demerit items such as alcohol and petroleum. They may then have to reduce the high ST on liquor if VAT is introduced and correspondingly raise excise duties.

While the best vending mechanism is yet to be figured out, Karnataka, experimenting with various options, has returned to the not-too-happy situation of auction for arrack and licensing for IML.

States are increasingly resorting to direct public intervention to check huge duty leakage possibilities. Karnataka intervenes in the case of country liquor at the blending point; Kerala has also recently begun public intervention. But this adds to the b urden of tasks such as fixing production levels, pricing and inventory management.

According to Dr Viswanathan, the tax reforms panel measures has suggested some measures to curb evasion, including incentives to officials, mechanised composite checkposts at borders for excise (as well as motor vehicle and commercial taxes), even simila r post in distilleries. Retailing liquor through supermarkets and bar coding of products will also help.