Kerala has decided to hike liquor prices by charging a 10-35 per cent Covid-19 cess, as the State, which already boasts some of the highest rates for spirits, attempts to mop up precious resources for an economy thoroughly battered by the pandemic.
A meeting of the State cabinet this morning decided to bring out an ordinance to the effect. Prices of both Indian Made Foreign Liquor and beer, concurrently taxed at 202-212 per cent and 102 per cent respectively, are expected to zoom. The existing tax for foreign-made foreign liquor is 80 per cent. Earlier, the State had wisely chosen to take a cue from some of its peers not to reopen the liquor vends and risk crowds, for fear of fuelling the virus’ spread.
Fiscal illusion
Kerala State Beverages Corporation, a public sector undertaking that has monopoly over wholesale and retailing vending of alcohol, levies tax, excise duty and gallonage fees (excise duty per litre of methyl alcohol) on the purchase price and factors in operating costs and a profit while fixing retail prices. The 2018-19 State Budget had waived surcharge, Social Security Cess, Medical Cess, and Rehabilitation Cess and had revised the existing sales tax rate structure.
Accordingly, the tax rate was fixed at 200 per cent for liquor with a retail price of ₹400; 210 per cent for those with a price tag of above ₹400; and 100 per cent for beer. The 2019-20 Budget had revised these rates upwards by 2 per cent. Wednesday’s decision to revise these further upward comes amidst criticism that politicians across the spectrum fall for the lowest hanging fruit and make merry milking indirect tax sources such as petrol-lottery-liquor tax sources. This, in turn, creates a ‘fiscal illusion’ in which the consuming public does not instantly feel the heat of the tax impost.
Jose Sebastian, public finance expert, and formerly faculty at the Gulati Institute of Finance and Taxation, feels it is no wonder that politicians should find it much easier to hike indirect taxes to raise resources. They refrain from tweaking direct taxes such as agricultural income tax, land revenue, property tax, profession tax, stamps and registration, motor vehicles or user charges such as student fees in professional colleges, and services in government-run district hospitals and medical colleges, for fear of hurting the short-term political need of keeping the vote bank in good spirits.