Karnataka's new tax hike may drive up illegal liquor sales

Recently, the Chief Minister of Karnataka announced that the state government is removing value-added tax (VAT) on alcohol which means pub-hoppers do not need to wait for happy hours anymore. However, at the same time, the state budget has proposed for increasing additional excise duty on alcohol which will lead to a surge in the retail price of liquor.

In other words, it will be cheaper to go to a pub and drink than to buy alcohol from a retail shop and enjoy the same at home. This may further give a push to illegal sales of non-duty paid alcohol and fake liquor in Karnataka. 

The state budget has proposed a hike of 6 percent to 21 percent in the additional excise duty as per the declared price slab as opposed to removing 5.5 percent VAT on hard liquors sold in bars and restaurants. This excise duty hike will help the government earn ₹18,050 crore in this financial year, reported a leading national daily.

However, though the additional excise duty will help to make more revenue for the state government but, according to trade experts, this might also help the illegal sale of non-duty paid alcohol, reported Times of India. 

Interestingly, the consumption of liquor is gradually decreasing in the recent years which do not mean people are consuming less, but because people are looking for cheaper alcohol. This is also indicative of the fact that, there is non-duty paid alcohol available in the market which was a menace almost a decade ago and gradually came under control in recent years. 

But, since the additional excise duty will further increase the price of the hard liquors, the illegal sales of non-duty paid alcohol, and fake liquor will further get boosted. 

Mainly, it is Goa from where the non-duty paid liquor is smuggled to Karnataka, and the reason behind their cheap rate is they are made without a licence. So, there is no licence fee or any other government duties to be paid on them. This leads to huge loss of revenue for the state government and more people buying the cheaper liquor. 

In fact, last month more than 1,500 bottles of the non-duty paid liquor was caught in Belagavi, the TOI quoted an excise officer as confirming and this could be just the beginning of what may be a menace for the state government soon. 

• Excise duty
• Additional excise duty
• VAT on alcohol