Come July 1 and the much awaited GST rollout may make alcoholic beverages dearer as prices are likely to be increased by 3 to 5 per cent for whiskey and wine, and 12 to 15 per cent for beer, Indian Express reported. While liquor is exempted from the Goods & Services Tax, the raw materials used in its production like glass bottles, molasses, barley malt and denatured alcohol will be taxed at 18 and 28 per cent. Most sectors will pay taxes on raw materials and get credit on paying GST on the end product. Since alcohol is exempted from the GST, manufacturers will only be paying the tax on raw materials without any credit. This is different from the food-grains which, under the ambit of GST, will be getting tax credit on raw materials. Shobhan Roy, director general of All India Brewers Association told the Indian Express that the beverage industry requested the Centre to keep them in GST. Since that didn’t happen, only the alcohol sector would not avail the benefit of a tax credit. Consequently, prices of raw materials and input services would increase the price of the final product for the customers, Roy said.
He said that in states where the government controls the price they will have to negotiate otherwise the prices will be at the cost of the industry’s margins. Raw materials comprise of 20 to 25 per cent of total expenses in liquor production and these expenses would increase by 12 to 15 per cent due to the inverted tax structure, according to the Indian Express. Roy said that apart from 2-3 Indian states where alcohol prices are controlled, rest of the country is a free market. However, if the prices increases, the customers will decrease which might affect the states’ revenue. United Spirits echoed Roy that the taxes could impact industry’s margins.
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The only relief in sight is the relaxation on GST for second-hand liquor bottles. Firms rely on this raw material as the old bottles have a life span of seven uses and cost one-third of newer bottles. Roy explained this phenomenon to the Indian Express that on second-hand bottles there’s no manufacturing involved and therefore should be exempted from the 18 per cent tax. The industry awaits Centre’s clarification on the issue before June 30. The tax credit is also exempted from transport and packaging. Deepak Roy, vice chairman of Allied Blenders and Distillers told the Indian Express that one major input in alcohol, grain spirit, would be exempted from the GST, giving the industry some relief.