Taxes can kill. Illicit liquor killed 130 people last week; the victims were from the border region between Karnataka and Tamil Nadu. Karnataka, where most of the deaths occurred, has a wide network of legal liquor outlets, 21,867 outlets, in fact, which makes for 15 vends per lakh of population, three times the national average. But Karnataka has high taxes, too. The ratio of excise duty to gross state domestic product is 1.8%, the highest among states and double that of a high liquor consuming state like neighbouring Kerala. Karnataka not only levies the highest taxes on both hard and soft liquor among southern states, its tax regime also doesn?t make any distinction between low and high value products. So, unsurprisingly, there?s a demand for non-taxed, non-legit and, therefore, dangerous moonshine. Estimates made at the start of the decade showed that the actual sale of Indian made foreign liquor in the state was 2.5 times more than official figures. That indicates the scope of the non-legit market. Legit liquor is often the base for lethal concoctions. The wide-ranging network of official liquor vends would have discouraged sale of illicit liquor but high taxes negate that effect.
A peculiar feature of India?s liquor taxes is that it is based on volume, and not alcohol content. This makes beer and wine more expensive than hard liquor and has fostered a mass consumption culture that sees safer, lighter alcohol as being uneconomical. Only 3% of total alcohol consumption in India is accounted for by beer. The global norm is 65%. Indians are the world?s champion whisky consumers and most low-end Indian whisky is of a quality that can make libertarians almost wonder whether interfering temperance movement busybodies may not have a point. This entire perverse situation obtains because the state refuses to be rational on alcohol. Just taxing it as much as possible will produce the kind of policy mindset distortion that led to outraged howls when Sharad Pawar made the perfectly sensible proposition of making wine available at ordinary retail outlets. Beer and wine should be taxed in terms of their alcohol content?this is also consistent from the vice tax point of view?and no liquor tax should be at levels that makes hooch attractive to low income consumers. Alcohol will still generate good revenue. But taxes won?t kill.