The Indian wine tax dilemma

Written by Magandeep Singh | Magandeep Singh | Updated: Dec 4 2011, 19:53pm hrs
Recently I was exposed to a very interesting and layered problem. I was sitting with some Indian winemakers and few other luminaries, all concerned about the state of the Indian wine industry, and the one word that came up more than just often, a fairly strong word, often blurted with a force akin to spitting it out, as if it was best dislodged vehemently as an unwanted projectile was: Tax!

Taxes not just as levied on foreign wines, but also taxes as applicable to local wineries. I listened in quietly, for there was so much I didnt know, a state of ignorance that had often made me wonder why were Indian wines, especially when produced in a country with one of the lowest labour costs, so expensive

But first, the premises. We all know that foreign wines are subject to heavy taxes, to the tune of 160%. This is the customs component, something that most hotels dont pay and yet smugly seem to forget when they put the price on their lists.

But then, each state functions independently and adds a local tax, which is probably arrived of by a complex calculation which, judging by the current rate, I can only rationalise is based on fantastical whim, insurmountable greed, and deep-rooted sadism. Without going into details, it suffices to sum up that when a wine ends up for about ten times its originating price at its point of depart, it isnt just the hotels playing the profit game. As a result, the choices on an outing are either to pay through our noses for a basic yet acceptably good internationally reputed Scotch or pay through our noses for some supermarket brand of wine, which could be best described as mediocre. Needless then, the drinking classes vote in favour of spirits.

But what about local wines, I always wondered Why are they priced around $10 when their quality is perhaps worth no more than $3 at best Surely the Indian winemakers arent as short-sighted on the profiteering front in order to maximise margins beyond reason. I am sure they know that high margins on decent-but-average wines will only ruin their long-term standing, not to mention retard the growth of the wine market.

Back to this conversation I was having, it soon became apparent that I was guessing rightthey were well aware that prices are well beyond the reasonable. A kilo of wine grapes sell for about R30, roughly the amount needed to make a 750ml bottle of wine. A kilo of table grapes can easily sell for double the price and these will find a readier market with plenty of takers, and, a lot less finicky about growing specifications, an area of education which needs much work in India in order to empower the wine-grape growing farmers to better exploit their fields. A kilo of raisins, can easily go for R120 and at this price, the farmers now have to do some serious thinking. Given this opportunity cost, is it truly viable to continue with winemaking specific grape cultivation The answer was only too obvious and it is not surprising that many an enthusiast has had to cut the vine shoots and re-graft them with table-grape shoots, just to keep business from going under.

Trouble is, as one winemaker cited, generic agricultural loans all attract a very high bank interest rate of 14.25%, as opposed to 5% in other countries. Furthermore, winemaking equipment, the advanced technology that helps a winemaker (or grape-grower) ascertain the quality of his produce on an ongoing basis, so that they can better control the quality of their grapes, are not cheap. Some machines even bear a euro price tag well into five digits. Tractors of correct weight that are built to pass between the rows of wines dont exist in the market and need to be imported. I shudder to even think how maintenance of these imported equipment is deployed and just how their lifespan tends to stand shortened due to lack of technical infrastructure and support. To then afford a concession-less 28% custom duty on these goods, it is no surprise that farmers find themselves wondering whether to tend to their fields or apply for some distance-learning course in hard-core accountancy.

Foreign or Indian, any wine arriving from a foreign territory will be levied with tax that could end up near-doubling its price! Such brotherly cooperation has now become a stand-off point between Maharashtra and Karnataka. Winemakers are bleeding dry trying to urge the respective authorities to step down from their ego and, in the best interest of the wine industry of both the states, acquiesce.

To sum up, local wine too stands discriminated; if not by critics and consumers, then by local levies and legislations.

And all this for farmers who were faring well selling normal table grapes or other hassle-free crops. This has surely been a deserving way to award a pioneering spirit.

And yet, we the Indian consumers, dream of drinking great Indian wines. In spite of all the facts and obstacles, the sincere among us strive incessantly. Today, I dedicate this column to all of them: thank you for not giving up!

The writer is a sommelier