Taxing Matters

In the debate on the structure and purview of the centralised Goods and Services Tax (GST), a sub panel of the Empowered Committee of State Finance Ministers -- an apex body that resolves all economic matters of the centre and state – is lobbying to keep alcohol out of the net.

The Indian constitution assigns to the states the responsibilty of prohibition through tax. Consequently states, on average, tax 30-32 per cent on alcohol sales. Coupled with manufacturing and distribution licence fees, in a country that annually produces as much as 2,300 million litres of alcohol, revenues from alcohol is not petty cash.

Under GST – currently discussed to be around 16 per cent -- alcohol will be cheaper for the consumers, which is not advisable since it is a demerit good. But the GST would also require states to split the revenue with the centre. "State governments conceptually don't want to share revenues with the centre," says Uday Pimprikar, partner at Ernst & Young.

Whatever the motivation, the sub-panels efforts if realised, will result in a rare practical case of government's financial well-being coinciding with public health.