Multi-point Jharkhand VAT to see 40% drop in tax mop-up

Written by Arindam Sinha | Jamshedpur | Updated: Jun 30 2010, 07:53am hrs
The India Made Foreign Liquor (IMFL) industry in Jharkhand says the recent notification by the governor regarding implementation of multi-point value-added tax (VAT) in the state would result in a drop in excise revenue to the exchequer by 30% to 40%.

According to the notification, Jharkhand is to adopt a 50% multi-point VAT system in place of the existing 50% VAT at the first point i.e invoicing by company to wholesaler with retrospective effect from June 23, 2010.

Jharkhand had only in 2009-10 experienced an overall 71% surge over 2008-09 in excise and commercial tax collection on IMFL products by dismantling a four-year old monopoly contract system of distribution of IMFL in the state by an open excise & prohibition policy from April 1, 2009.

Its IMFL-related commercial tax and excise collection, which in 2008-09 stood at Rs 49 crore and Rs 210 crore respectively, rose in 2009-10 by 129% to Rs 112 crore in case of commercial tax revenue and by 57% to Rs 330 crore in case of excise revenue.

Going by a 25% growth the industry has seen in the first quarter of 2010-11, industry experts said the state would have been easily able to mop up Rs 140 crore as tax revenue on IMFL and Rs 412.50 crore by way of excise revenue for the entire year, which, with a 50% multi-point VAT, would not be possible.

Implementation of a new multi-point VAT would see a 30% to 40% industry de-growth resulting in the exchequer netting only Rs 131 crore as commercial tax and Rs 231 crore as excise duty in 2010-11 if the de-growth is restricted to 30%, said an industry source, adding that commercial tax would be lesser at Rs 123.46 crore and excise collection lower at Rs 198 crore if the drop in business was by 40%.

Most said that the current hike would only open the floodgates for illegal trade in IMFL from cheaper sources like Bihar, West Bengal and Orissa.

Industry sources citing examples said introduction of multi-point VAT in the state would result in a 180 ml nip of Royal Stag whisky costing Rs 129. The same costs Rs 82 in West Bengal, Rs 102 in Bihar and Rs 95 in Jharkhand today.

Industry insiders said Jharkhand had not learnt from the bad experience of 2000 when hiking excise duty on IMFL from Rs 55 to Rs 100 per LPL in 2000 had resulted in an industry de-growth of 40% to 45%.

Bihar too had as recently as in September 2008 tried to adopt a multi-point VAT.

However, the excise department there was quick to see that imposition of multi-point VAT would only see prices of IMFL products go up substantially, leading only to a lower turnover at the retail end.

If the government did not roll back the new policy, it can at least reduce the multi-point VAT from the proposed 50% to 20% at each point; this would save the end-user from paying through the nose for his brands of IMFL as also result in good revenue collection for the government, said another wholesaler.