High taxes in West Bengal water down liquor sales in May

Liquor sales in West Bengal saw a 35 per cent drop in May this year compared to the same month last year, according to the Confederation of Indian Alcoholic Beverage Companies (CIABC).

The apex industry body has linked this fall to a 30 per cent additional sales tax, imposed by the State government, with effect from April 9. It urged the government to bring it down to 5-10 per cent.

The additional tax burden was over and above the marked-up price in stocks that the shops had at that point of time. Notices in this regard were put up outside shops.

When shops were opened in May after the lockdown, there was an initial surge in sales but that tapered off.

A month-wise break-up of data, available with CIABC, showed that in May 7.23 lakh cases of IMFL were sold in West Bengal against 11.13 lakh in the year-ago period (35 per cent drop). One case is equivalent to nine litres of liquor.

March 2020 saw a 29 per cent drop in sales to 9.58 lakh cases(13.56 lakh). Similarly, in April 2020 (when lockdown was in effect), just 1.68 lakh cases were sold, 84 per cent drop year-on-year.

An analyst who did not wish to be identified, said, May sales were even fewer than that in March this year (the month when lockdown was announced). In March, around 9.58 lakh cases were sold. “Some stocking could have happened,” he pointed out.

Pernord Ricard, the second largest spirit-maker globally, during an investor call in April had maintained that “India is at plus-1 per cent from 9 months on a very high comparable basis. But the nationwide lockdown imposed on March 24 (saw) softening Q3 performance.”

High Taxes

According to Vinod Giri, Director General, CIABC, although June sales numbers are yet to come in, there is “no significant reason for deviation” in trends as long as higher incidence of taxation persists.

“There is also sufficient empirical evidence that when prices are increased sharply, consumers down trade to cheaper products. Hence, tax collection per bottle goes down. What is worrying is a sales drop in May and it seems that there is no significant reason for deviation in June,” he told BusinessLine.

For instance, in Delhi imposition of high taxes brought down liquor sales; Haryana and Uttar Pradesh, which imposed moderate tax increases managed to contain the decline. Delhi has subsequently withdrawn 70 per cent tax and replaced it with a reasonable 5 per cent increase in VAT.

Edelweiss Securities in a report has maintained demand for spirits is expected to remain soft over the next few quarters. “Spirit, being discretionary in nature, are expected to face volume deceleration in ensuring quarters,” it said.

The report further adds that “State budgets are more constrained” in the absence of fiscal levers that Centre have (like dividend from RBI and so on). The combined fiscal deficit is already touching the target set under FRBM Act. “This means States will have little choice but to raise consumption taxes primarily on liquor and petroleum,” it added.

Smuggling across states

The difference in liquor prices between West Bengal and some of its neighbouring States is “too wide” and this could lead to “large scale unlawful smuggling of liquor across State borders”.

For instance, CIABC said, if post-Covid price of a leading consumer brand stands at ₹250 (previously at ₹90) in West Bengal, the same brand is available at ₹145 or ₹190 in Assam or Jharkhand.

Giri maintianed that this works out to be a price difference of nearly ₹19 lakh and ₹33 lakh per truck from Jharkhand and Assam, respectively.

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