Alcohol to cost more as govt plans to hike tax to offset payouts of farm loan waiver

If at all this happens, the demand for alcohol consumption will be affected as liquor companies will have to increase the cost of alcohol.

Maharashtra govt increased tax on IMFL by 20 per cent. (Image: AFP)

New Delhi: Farm loan waiver has been one of the hotbed agendas for major political parties of the country ahead of 2019 general elections. In fact, Congress party on various instances have asked the ruling government to announce farm loan waiver across the country. However, the political promise of waiving off these loans will make alcohol companies the leading victim. According to media reports, several states are planning to hike taxes on liquor which stands as one of the leading revenue sources for government. If at all this happens, the demand for alcohol consumption will be affected as liquor companies will have to increase liquor rates. Ás the Bharatiya Janata Party (BJP)-led Central government is still struggling with the agrarian crisis in the country, rising liquor tax becomes the most likely option to tackle the situation. Recently, Congress announced immediate loan waivers in three key states including Madhya Pradesh, Chhattisgarh and Rajasthan after taking over the government from BJP in 2018 Assembly elections. Currently, liquor taxes bring around 25 per cent of the overall revenue and as state governments are unlikely to borrow and worsen their debt to GDP ratios it is the only possible option to offset payouts made towards farm loan waivers. “In the past, there have been multiple instances where volumes have taken a beating owing to price hikes emanating from an increase in the tax rate,” news agency Bloomberg quoted Edelweiss analysts Abneesh Roy and Alok Shah as saying in an investor note on Jan 1. Even the Maharashtra government has increased tax on Indian-made foreign liquor (IMFL) by 20 per cent. As many as seven states have announced waivers which sums up to Rs 1.75 trillion ($25 billion) so far, according to Edelweiss. If the taxes on liquor are hiked, it will result in rise of MRP which could possibly hit the volume. In the past, these have several instances wherein volume of alcohol sale has been affected owing to price hikes emanating from the increase in tax rates. According to Excise Department officials, Karnataka alone gulped down liquor worth Rs 70 crore in one day on December 31, 2018. Indian Made Liquor and beer together accounted for this huge collection.