Mallya effect: Govt to cut import duty on liquor

New Delhi, May 29 | Updated: May 30 2007, 05:30am hrs
Raise a toast to Vijay Mallya! Just a week after the liquor baron acquired the worlds fourth largest maker of Scotch whiskyWhyte & Mackaythe government has decided to cut taxes on imported wines and spirits by as much as 550% by June. The domestic liquor lobby has been strongly opposing lowering of import duties on spirits and wines. Mallyas UB group controls over 60% of the domestic spirits market.

Commerce ministry officials, however, said the decision is in response to the European Union and the US asking the World Trade Organisation to examine Indias discriminatory tariff regime against foreign wines and spirits. Confirming the development, commerce secretary, GK Pillai told Bloomberg, We are in the process of realigning our duty structure as we are part of the WTO agreement. He said the process has already started. It (the realignment) will be over in a month. Indias import duties on wines and spirits are as high as 264% and 550%. India imposes additional duties on wines and spirits as a countervailing duty to compensate excise duties imposed by states on domestic liquor. Domestic consumption of liquor has been growing at 8% annually, and that for wines at 17%. EU has been very keen to break into this attractive market but the stiff rates have made imported liquor far more costly compared with domestic ones. India will be among the top five fastest-growing markets for the next four years, market research body Euromonitor International said.

The government has been planning to introduce the Countervailing Duty in the Imported Alcoholic Liquors Bill, 2007 to correct the current duty structure. The Bill proposes to levy CVD at rates equal to the rates of excise duty on domestically produced liquor prevailing in each state. States will not be permitted to levy import duties on foreign liquor over an above what the centre does. EU has contended that imposition of special customs duty on wines and spirits besides state levies is not permitted under multilateral trading rules.

The duty would be a destination-based tax on consumption, similar to the value-added tax. The Centre shall levy it but it will be collected and appropriated by the state concerned. However, it will lead to an estimated revenue loss of Rs 25 crore to the Centre every year.

The Bill, which was scheduled to be tabled in Parliament in the second half of the budget session was delayed, partly due to clarifications sought by the law ministry on the issue.

The duty cut will enable Diageo Plc and Pernod-Ricard SA to increase sales in India where the fastest wage growth in Asia gives consumers more to spend on wines, gins and whiskeys.