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WHY LIQUOR SALES MATTER TO STATES?

Why in news?

Following the easing of restrictions in the third phase of the nationwide lockdown, some of the most striking images on 4th May showed long queues outside liquor stores around the country.

Manufacture and sale of liquor is one of the major sources of their revenue.

How do states earn from liquor?

Liquor contributes a considerable amount to the exchequers of all states and Union Territories except Gujarat and Bihar, both of which have enforced prohibition.

States levy excise duty on manufacture and sale of liquor, and some states like Tamil Nadu also impose VAT.

A report published by the Reserve Bank of India on September 2019 – shows that state excise duty on alcohol accounts for around 10-15 per cent of Own Tax Revenue of a majority of states.

In fact, state excise duties on liquor is the second or third largest contributor to the category State’s Own Tax revenue; sales tax (now GST) is the largest.

How much do states earn from liquor?

  • The five states that collected the highest revenue from excise duty on liquor were Uttar Pradesh (Rs 25,100 crore), Karnataka (Rs 19,750 crore), Maharashtra (Rs 15,343.08 crore), West Bengal (Rs 10,554.36 crore) and Telangana (Rs 10,313.68 crore).
  • With Bihar and Gujarat having prohibited liquor, Bihar had ‘nil’ revenue from liquor in 2018-19 and 2019-20, while Gujarat’s liquor revenue was negligible.
  • Andhra Pradesh too announced prohibition last year; however, sale of the liquor has been allowed with “prohibition tax” from 4th May 2020.

State Excise and State Revenue

  • State excise is levied mainly on liquor and other alcohol-based items.
  • The states’ revenues comprise broadly two categories — Tax Revenue and Non-Tax Revenue.
  • Tax revenue is divided into two further categories: State’s Own Tax Revenue, and Share in Central Taxes.

Again, Own Tax Revenue comprises three principal sources:

  1. Taxes on Income (agricultural income tax and taxes on professions, trades, callings and employment)
  2. Taxes on Property and Capital Transactions (land revenue, stamps and registration fees, urban immovable property tax)
  3. Taxes on Commodities and Services

-Source: Indian Express

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