State Earnings from Liquor

The revenue from the liquor industry which goes to the state government is staggering. We take a look at how the states benefit from the liquor industry.

Liquor contributes a considerable amount to the exchequers of all states and Union Territories (UTs) except Gujarat and Bihar, both of which have enforced prohibition.

Andhra Pradesh announced prohibition in 2019, however, sale of the liquor has been allowed with “prohibition tax”.

States levy excise duty on manufacture and sale of liquor. States also charge special fees on imported foreign liquor, transport fee, and label & brand registration charges.

A few states like Uttar Pradesh, have imposed a ‘special duty on liquor’ to collect funds for special purposes, such as maintenance of stray cattle.

The Reserve Bank of India published the report ‘State Finances: A Study of Budgets of 2019-20’ in September 2019.

It shows that state excise duty on alcohol accounts for around 10-15% of Own Tax Revenue of a majority of states.

In fact, state excise duties on liquor is the second or third largest contributor to the category State’s Own Tax revenue; Goods and Services Tax-GST is the largest. This is the reason states have always wanted liquor kept out of the purview of GST.

According to the report, in 2019-20, state GST had the highest share, 43.5%, in states’ Own Tax Revenue, followed by Sale Tax at 23.5% (mainly on petroleum products which are out of GST), state excise at 12.5%, and taxes on property and capital transactions at 11.3%.

State Excise

Excise duty on production of few items including that on liquor and other alcohol-based items is imposed and collected by state governments and is called ‘State Excise’ duty.