WHAT DOES IT MEAN FOR LIQUOR TO BE OUT OF GST
By: – Dr. Sanjiv Agarwal
Goods and Services Tax – GST
Dated:- 19-6-2017
It is a fact that alco-beverage companies shall be out of Goods and Services Tax (GST) net as per Constitution of India since GST can not be levied on alcoholic beverages meant for human consumption (potable liquor). It would continue to be a State subject on which taxes would be levied only by the State Governments implying that their production will not be subject to GST and will continue to be taxed with State Excise Duty and Value Added Tax (VAT).
Alco beverages: What's in store
* Out of GST
* But will suffer
* State excise on production
* VAT on Sales
* Exposed to both tax regimes (existing and GST)
* Various inputs and services would be subject to GST
* Will affect costs
* Will affect bottom-line
* Not a tax efficient scenario
What can Alco-beverages Sector do
Being out of GST net, alco-beverages sector will be adversely i
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nerally liable to GST
* Inter unit supplies – not taxable
* Sale of alco0beverge – liable to VAT
* Output services :
* Renting of immovable property leasing of distillery- liable to GST
* Assignment of brands – liable to GST
* Other Services (e.g. selling & distribution) – liable to GST
Being out of GST
Being out of GST net means a lot to this industry in terms of economies. It is a double whammy for liquor business – one, most of the input costs goes up and two, you don't get any set off of the taxes that go into the production of liquor implying that there is going to be huge cascading effect which will eventually be passed on to the consumers and these are the consumers who for want of booze. Can go that extra mile and pay extra for it. After all, habits die hard.
Let's see how costs will go up. We know that almost all goods and services shall be subject to levy of Goods and Services Tax. It is only a matter of time now. That would imply that input cost of goo
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ing, warehousing, transportation, marketing incentives etc. would be liable to levy of GST. Infact, all expenses other than salary cost will be liable to GST. Given the fact that most of services will now be taxed at standard rate of 18 percent, there will be a flat hike in tax rate by 3 percent across the board.
The only respite could be some planning by way of review of business arrangements so that some activities may fall in the scope of services on which GST is levied as on services on which some input tax credit could be availed. Also, liquor manufacturers could renegotiate with suppliers for a lower rate because of GST benefits accruing to them. Since alco-beverages will be out of GST net, the harsh provisions of GST compliance rating and anti-profiteering may not be applicable to this industry.
Way forward
Subject to liquidity, working capital availability, capacities and strategic decisions based on various other commercial and economic decisions, alco beverage sector can l
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