Can Liquor Come Under GST? What Nirmala Sitharaman Told NDTV

Including liquor for human consumption within the Goods and Services Tax ambit - as opposed to it being covered by state excise duties and Value Added Tax - is "entirely dependent" on decisions taken by individual state governments, Union Finance Minister Nirmala Sitharaman said Tuesday at the NDTV Profit GST summit. "It is up to the states... I can't comment," she said.

Under current laws tax on alcohol for human consumption is levied by state governments; excise duty is charged on its manufacture and VAT is imposed on its sale. The combined proceeds present a lucrative source of revenue for states and union territories.

In March, for example, the Delhi government said it had collected more than Rs 5,069 crore from liquor taxes in the current financial year, as compared to Rs 210 crore from the sale of milk.

Tax revenue from liquor in previous years was over Rs 5,000 crore in each of the past three years, with the highest collections of Rs 5,547 crore in FY23 and Rs 5,487 crore FY22.

Collection is as high, if not higher, for other states; Maharashtra, for example, swept in a staggering Rs 23,250 crore in FY24 and is expected to pick up an additional Rs 14,000 this year.

Tamil Nadu's liquor tax revenue is even higher. The state earned Rs 48,344 crore in FY25 and Rs 45,856 crore the year before, with sales controlled by the state-run TASMAC firm.

So, handing liquor taxes to the centre would represent a big dip in states' revenue streams.

Earlier the centre controlled taxation on liquor for industrial consumption, an item listed in the Industries (Development and Regulation) Act of 1951. However, in a landmark ruling last year, the Supreme Court said states could legislate on sale of industrial alcohol by including it under the term 'intoxicating liquor'.

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The majority ruling overturned a 34-year decision by a seven-judge bench in Synthetics and Chemicals Pvt Ltd vs Uttar Pradesh that was sent to a nine-judge bench in 2007.

Meanwhile, the price of liquor (for human consumption) is set to increase after the GST Council decided to apply a 'sin tax' on alcohol and other luxury items, including high-end cars.

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The council proposed two alternatives to the expired Compensation Cess - a Health Cess and a Green Energy Cess - to be applied over and above existing taxes on an item or service.

The 'sin tax' was part of an overhaul of the GST framework that was launched in 2017.

As part of the overhaul, the number of tax slabs have been cut from four to two and several items, including premium on health and life insurance, have been entirely exempted from GST.

The GST revision, Ms Sitharaman told NDTV Profit, took 18 months of consultations between stakeholders, including states and businesses, to work out acceptable rates.

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The big-ticket announcement there was the scrapping of the 12 and 28 per cent GST slabs, leaving only the bottom-rung five per cent and the mid-level 18 per cent categories.

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