Liquor shops in India opened after being closed for 40 days, resulting in long queues and chaos outside most outlets across the country, with little regard to social distancing norms.
Many outlets had to be closed due to unruly crowds, and in those that stayed open, record sales were recorded.
After assessing this overwhelming response, many states have decided to impose taxes on liquor to replenish their dwindling coffers. Liquor shops had been closed since March 25, after the government announced a countrywide lockdown to fight the coronavirus.
The lockdown also caused widespread disruption to the economy which has affected the revenues of all states.
Four states – Delhi, Andhra Pradesh, West Bengal and Rajasthan – have announced an increase in the excise duty for liquor. Delhi increased the tax by 70%, Andhra Pradesh by 75%, West Bengal by 30% and Rajasthan by 10%, all to raise funds to fight the pandemic and manage state finances, the governments said.
However, that had little effect on the serpentine queues in front of liquor shops.
Karnataka state rationed liquor sales by setting a limit on the quantity a customer could buy, while Chhattisgarh state was offering door delivery of liquor in areas not affected by the coronavirus to discourage people from lining up in front of liquor shops. The state even set up an app for online orders.
In India, many state governments either control liquor retailing or wholesale distribution, or both. The states levy a tax, known as excise duty, on the manufacture and sale of liquor and it contributes significantly to the exchequers of all states and union territories, except Gujarat and Bihar, where prohibition is in force.
A recent report by the Reserve Bank of India revealed that state excise duty on alcohol accounted for 10-15% of tax revenue of a majority of states. In many states, it is either the second or third largest contributor to revenue.
The central bank report also showed that during 2019-20, the states and the union territories collected about 1.75 trillion rupees (US$23 billion) in excise duty. This was 16% higher than the 1.50 trillion rupees ($19.7 billion) collected during 2018-19.
On average, the states collected about 125 billion rupees per month by taxing liquor in 2018-19, which rose to about 150 billion per month in 2019-20.
Liquor company executives feel the steep hike in taxes imposed by some states in the past couple of days will encourage others and it will prove to be counterproductive in the long run. Market experts also point out that once a tax is hiked it is rarely rolled back. And in the case of liquor, it will be seen as a politically incorrect step.