The central government recently eased restrictions on the sale of liquor during the third phase of the nationwide lockdown. Additionally, a 70% surge, referred to as ‘Special Corona Fee,’ was introduced by the Delhi government across all liquor categories. These decisions illuminate the economic significance of the liquor trade for the states.
Revenue Generation from Liquor Sales
Liquor makes a substantial contribution to the coffers of all states and Union Territories (UTs), excluding Gujarat and Bihar, which have both enforced prohibition laws. However, even though Andhra Pradesh declared prohibition in 2019, they have permitted liquor sales with the implementation of a “prohibition tax.”
States impose an excise duty on the production and sale of alcohol and collect separate fees for foreign imported spirits, transportation charges, and for label and brand registration. Some states, such as Uttar Pradesh, have implemented a ‘special duty on liquor’ to raise funds for distinct purposes, like the upkeep of stray cattle.
According to the Reserve Bank of India’s report ‘State Finances: A Study of Budgets of 2019-20,’ state excise duty on alcohol accounts for approximately 10-15% of a majority of states’ Own Tax Revenue. It also ranks as the second or third largest contributor to State’s Own Tax revenue, following the Goods and Services Tax (GST).
Components of State Excise
The state excise duty is imposed and collected by state governments on a few items, including liquor and other alcohol-based products. Essentially, it is a production tax levied on goods manufactured within India intended for domestic consumption.
Revenue primarily comes from commodities such as Country Spirits, Liquor, Foreign Liquors, Medicinal and Toilet Preparations containing Alcohol, Opium, and other Drugs. Moreover, a significant amount is generated from licenses, fines, and confiscation of alcohol products.
Varying Sources of Revenue for States
Various streams contribute to the state’s tax revenue, including the agricultural income tax, professional taxes, land revenue, sales tax, state excise, and taxes on vehicles. However, according to a 2019-2020 report, state GST had the highest share of 43.5% in states’ Own Tax Revenue.
Every five years, as required by Article 280 of the Indian Constitution, the Finance Commission convenes to ensure that states receive a fair share of the union government’s tax revenue.
Non-Tax Revenue Sources
Non-tax revenues are guidelines imposed by governments to facilitate goods and services. While it is compulsory to pay a portion of the income earned and the amount of goods and services consumed as tax, non-tax revenue is only payable when governmental services are availed.
This category includes Interest from loans given to states and union territories for non-plan schemes and plan schemes, dividends and profits, Petroleum license fees, Power supply fees, Broadcasting fees, Road and Bridge usage fees, Examination fees, among others.
Last Modified: February 7, 2024