Duty-free shops may become less of a draw for air travellers

There may be tighter curbs on duty-free shopping at India’s airports if a proposal from the Commerce and Industry Ministry for Budget 2020-21 to restrict alcohol and tobacco sales gets accepted.

Per the proposal sent to the Finance Ministry, the limit on the purchase of foreign wines and spirits at duty-free shops should be halved to just a single 1-litre bottle per international traveller arriving at airports in India. Also, it wants duty-free sale of tobacco to be completely stopped, according to an official.

The Revenue Department under the Finance Ministry, however, has not yet given its approval to the proposal which, if implemented, is likely to be unpopular with air travellers.

Revenue leakage

“The idea behind the proposal is to help the government plug some revenue leakage, as the sale of foreign liquor and tobacco at duty-free shops is rising sharply. If people want to enjoy imported liquor and tobacco they should be willing to shell out the duties imposed on it,” the official told BusinessLine.

Duty-free liquor sale, estimated at about $200 million in 2017, could increase to about $800 million by 2025, according to a report by Bengaluru-based RedSeer Consultant. India’s import duty on alcoholic beverages is about 150 per cent, while that on tobacco products is about 100 per cent. If duty-free allowance is halved, customers would need to pay high duties to buy foreign liquor.

No correlation?

However, industry experts say that curbing duty-free purchases may not automatically result in higher revenue collection.

“A number of travellers buy foreign liquor and cigarettes only because they are available duty-free —they wouldn’t buy them if import duties were applied on them,” said a Delhi-based trade expert. “So, one can’t automatically assume that curbing duty-free sales would increase duty collection. The government has to look at other sources to increase revenue generation.”