GST on Beer & Liquor

The GST Council introduced

Goods and Service Tax (GST) in India from 1st July 2017 to unify the indirect taxes levied on goods and services. In this article, let us look at the applicability of GST on beer and liquor in detail.

No GST on Beer & Liquor

GST is not applicable for purchase of beer or liquor in India. However, the State Governments shall continue to levy VAT and excise duty on liquor and beer. The GST Council exempted liquor and beer under the ambit of GST for two main reasons:

To ensure State Governments have a strong source of revenue other than from the GST. It is estimated that the taxes on beer and liquor fetch state governments around 90,000 crores in taxes each year.
To keep the prices for beer and liquor high, so as to restrict the consumption of such products.

High Taxes on Beer & Liquor

Despite not attracting GST, the prices of liquor and beer had continued to rise after the introduction of GST. This is because, before the implementation of GST, the input raw material used for the manufacturing of beer and liquor used to be taxed at around 12-15% under various VAT regimes. However, with the implementation of GST, most of the raw material used in the manufacturing of beer and liquor now attract 18% GST rate, leading to an increase in input cost. This increase in taxes on input cost has been passed on to the customers. The other major reason for the increase in the cost of beer and liquor is the GST applicable on freight and transportation charges. Earlier, freight and transportation used to attract a service tax of around 15%. However, under GST, these services have been taxed at 18%. Hence, despite no major changes in the input costs or VAT rates charged on beer or liquor, the cost of beer and liquor had increased due to the increase in input taxes.

Also read: GST on the Real Estate Sector

Requests from Industry

The GST Council exempted the alcoholic products out of the ambit of GST as it ranks as one of the highest revenue generators for State Government. Hence, exempting liquor and beer from GST will ensure the State Governments have a certain level of financial independence. The beer and liquor industry is, however, not in support of the decision to exempt beer and liquor from GST. Exempting beer and liquor from GST will lead to an increase in taxes, as the taxes on input goods increased. Further, since the output for manufacturers would be in a tax-exempt product while they have to pay input taxes on raw material purchases, beer and liquor manufacturers would have to claim a

refund of input tax credit accumulated, which could be a long process leading to the lengthening of working capital cycle. Finally, most manufacturers feel that there is no point in excluding beer from GST and including it with liquor, as it has only 5% alcohol by volume. Most industry insiders feel that beer should be brought under GST and made mainstream as it has a tremendous impact on the tourism industry as also in restaurants and bars.

Taxes for Beer & Liquor

Even though liquor exempted from GST under the GST regime, it falls under many other taxes that contribute to its usually rising price ranges. The following taxes shall apply for the States:

Excise Duty
VAT (Value Added Tax)

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Frequently Asked Questions

Common questions about GST Impact on Beer and Liquor Taxes in India.

GST is not applicable to beer and liquor in India for two main reasons: 1) To ensure that state governments have a strong source of revenue other than GST, as taxes on beer and liquor fetch them around ₹90,000 crores annually. 2) To keep the prices of beer and liquor high, thereby restricting their consumption.

The prices of beer and liquor increased after the implementation of GST because the input raw materials used in their manufacturing now attract 18% GST, leading to an increase in input costs. Additionally, freight and transportation services, which were previously taxed at around 15%, are now taxed at 18% under GST.

Even though beer and liquor are exempt from GST in India, they are subject to other taxes levied by state governments, such as excise duty and value-added tax (VAT).

The beer and liquor industry wants to be included under GST because the current system of exemption leads to an increase in taxes on their input goods, as they have to pay GST on raw materials but cannot claim input tax credit. This lengthens their working capital cycle and increases costs.

Some industry insiders believe that beer should be treated differently from liquor under GST because beer has only 5% alcohol by volume and has a significant impact on the tourism industry, restaurants, and bars. They argue that beer should be brought under GST and made mainstream.

The main reasons for exempting beer and liquor from GST are to ensure that state governments have a strong source of revenue and to keep the prices of these products high to discourage their consumption.

The GST on input goods affects the beer and liquor industry because they have to pay GST on raw materials but cannot claim input tax credit, as their output products are exempt from GST. This increases their input costs and lengthens their working capital cycle.

The impact of GST on freight and transportation charges for the beer and liquor industry is that these services are now taxed at 18% under GST, whereas they were previously taxed at around 15%. This has increased the overall costs for the industry.

According to the article, it is estimated that state governments fetch around ₹90,000 crores in taxes from beer and liquor each year.

The article does not mention any other specific taxes levied on beer and liquor besides excise duty and value-added tax (VAT) imposed by state governments.