Issues with current liquor policies in India: Huge tax and licence raj in liquor

Source: The post issues with India’s current liquor policies has been created, based on the article “Huge tax and licence raj in liquor” published in “Business standard” on 9th April 2024.

UPSC Syllabus Topic: GS Paper 2-governance-Government policies and interventions for development in various sectors and issues arising out of their design and implementation.

News: The article emphasizes the need for reform in India’s liquor policy, highlighting the problems caused by high taxes and strict licensing. It points out that these policies lead to increased consumption of low-quality liquor, limited market competition, and potential corruption.

What are the issues with India’s current liquor policies?

Excessive Taxation: India’s liquor taxes are extremely high, often above 200% domestically and 150% for customs duties, burdening consumers financially.

Impact on Health: High taxes lead consumers to lower-quality, cheaper alcohol, increasing health risks, especially at the lower income levels.

State Revenue Dependence: States heavily rely on liquor taxes for revenue, but Bihar’s prohibition shows alternatives exist for state financing.

Complex Tax System: Liquor is not included under the Goods and Services Tax (GST), complicating the tax structure. Including it could simplify taxation and align it with other products like cigarettes.

Government Monopoly in Sales: Current policies often lead to government monopolies in liquor sales, which can increase corruption and create barriers for private businesses.

What should be done?

Include Liquor in GST: Simplify the tax system by including liquor under GST, as done with cigarettes, to unify and streamline the tax process.

Encourage Private Distribution: Shift from government monopolies to private distribution of liquor, regulated for safety and age restrictions. This can decrease corruption and open opportunities for ordinary businesses.

Reform Licensing Policies: Simplify licensing for liquor sales and consumption in public spaces to reduce bureaucratic hurdles and promote a healthier business and social environment.

Question for practice:

Examine the key issues with India’s current liquor policies and propose potential reforms to address these challenges.