Column Hungover on taxes

Written by Yatin Patil | Updated: Aug 29 2008, 05:55am hrs
Indian wine drinkers and makers are waiting for an opportunity to raise a toast to a government policy that will bring uniformity in taxation and duties across all states in the wine sector, which is in its infancy and registering a growth of 25-30% annually.

It is time that wine is treated differently from hard liquor (it has much lower alcohol content) under the ministry of food processingthe wine industry assists agricultural diversification and employment generation in the rural sector and helps counter large wine imports. Also, it would help if the MRP of liquor is made uniform across the country, and there is consensus among states to bring about a uniform duty structure under four headsexcise & countervailing duty, sales tax, licence fee and label registration charge. The MRP must be mentioned on the bottle and sales tax is should be charged on the MRP mentioned. Consumers will be more comfortable with the fact that they are buying the same product in different places at the same price. Not only will it affect prices but also the product will become consistent. The uniform duty structure will also stabilise the differential pricing in various states due to the tax structure.

The lack of uniformity in sales tax rates and other charges by different state governments is a major deterrent in industry growth. Each state has a different tax structure and levies, and other regulations regarding licensing fees and sales of new brands. Currently, state-wise excise duties on liquor sales in India have drastic variations from Rs 25 to Rs 500 per litre across states, with Maharashtra imposing the highest duties and Punjab the least. This varied structure creates a situation where states at times draft retaliatory policies which benefit a select few wine makers and is not in the best interest of the end-consumer.

The classic example being the new wine policy proposed by Karnataka which sought to increase the cost of importing wines from outside the state from Rs 10 to Rs 300 per litre, thereby increasing costs to consumers by Rs 280 per bottle, severely challenging the wines brought in from Maharashtra. As a result, the Maharashtra wine industry, which had over 80% of the 46,250 cases of premium wines sold last fiscal in Karnataka is renewing efforts to persuade their own government to ease the tariff barriers imposed so that the Karnataka authorities may be persuaded to relent.

The best means to counteract these challenges in the tax regime to support the growth of the Indian wine industry is by agreeing to the longstanding demand of the industry that wine should be treated as any other beverage. Wine makers are commodity traders who should not be regulated and free movement of agricultural produce should be permitted between states. This is very essential for food processing where the processing units are located in different states.

Its interesting to see a wine-drinking culture seeping into India to encompass the traditional beer lovers. India is still a nascent but fast growing wine market which showcases the changing lifestyles and increasing disposable incomes of people. Wine as a beverage is low on alcohol and good for health, making it a sophisticated choice for todays growing middle class which has a strong eating-out culture.

Also, the recent decision of setting up a national wine board to boost the sector and an adhoc committee to govern its work is the step in the right direction. The need of the hour for the Indian wine sector, which is in a state of infancy, is a platform for consolidation of efforts and to grow the market in an integrated and structured pattern.

If we want to compete with other nations who dominate the global business of wine, then the government needs to start taking policies affecting Indian wine producers seriously.

The author is managing director, Vintage Wines. These are his personal views