We hypocrites, thrive on income from liquor, but exhort that we are for prohibition.

June 16, 2014 | By | Add a Comment

We Keralites are Hypocrites. Our main source of income is  liquour. We keralites thrive on income from liquor. In 2012-13, Kerala’s own tax revenue was Rs. 30,076.81 crores. During the same year, the Kerala State Beverages Corporation, the monopoly  in the area of sale of Indian made foreign liquor (IMFL) contributed RFs. 7240 crores o the state exchequer ( in the form of sales tax excise duty gallonage fee, licence fee etc). This worked out to 24.1 percent of the total own tax revenue of the state of Kerala. In 2012-13, Kerala’s state plan allocation was Rs. 14.060 crores. Income from liquor (only IMFL) contributed 51 percent of the state plan in the year 2012-13. Still we exhort day in and day out that we are for prohibition and are committed towards eradicating this social menace which has been upsetting the social fabric of Kerala.

Let us look at a few estimates regarding the sale of IMFL in Kerala during the last few decades. The estimates reveal a thoroughly shocking picture of how our flawed policy initiatives have resulted in a situation wherein we are totally dependent on income from liquour for taking care of our daily financial needs. It may be recalled that arrack was banned in Kerala a few decades back. And in an attempt to bring down liquor consumption further tax on IMFL was sharply increased. As of now, sales tax rate on IMFL is 105 percent. But even though tax rate of sharply increased, government entered into the liquor market in Kerala in a big way and made the Kerala State Beverages Corporation (Bevco), a state PSU a virtual monopoly in the field of sale of IMFL and beer in Kerala. Today, IMFL and beer is sold by Bevco directly to customers, to Bars and to a few consumer fed outlets. Through entering into a field of liquor sale government fully ensured that pure quality liquor totally free from any kind of adulteration is a valuable to the liquour consumers. On the other hand government allowed Bevco to increase the numbers of retail outlets step by steps. As of 2013-14 there are 338 retail outlets run by the Bevco.

The policy regarding hike in tax rate expecting as decline in consumption was totally flawed. Experience suggests that in Kerala as far as liquor consumption is concerned it has been inelastic. The continuous hike in tax rate has never ever resulted in decline in consumption. For example, between 1984-85 and 2012-13, liquor consumption, specifically IMFL, had never declined, So in fact, the sharp increase in tax rate coupled with sharp increase in consumption, resulted in sale of IMFL becoming a major source of income for the government over the years. For example, during the decade between 1993-94 to 2002-03, contribution to state exchequer from sale of IMFL was Rs. 7630.86 crores (Rs 763.08 crores/year). And during the next decade (2003-04 to 2012-13) contribution to sate exchequer from sale of IMFL increased by 4.9 times to Ts. 37,487.86 crores (Rs.3748.78 crores). In fact it has been the totally flawed policy initiatives taken in the area of sale of IMFL, ie to make a sharp increase in sale tax for a commodity like liquor, wherein its consumption has been inelastic has resulted in a situation of overdependence on income from liquor. And this easy source of income from liquour more income through high rate of tax for a commodity whose demand has been sky rocketing has in fact made our policy matters to remain complacent with regard to tax collection from other sources.

Estimates show that with regard to IMFL the demand has been ever increasing and insatiable. Sale of IMFL and beer has never ever dipped even once during the last three decades between 1984-85 and 2011-12. In 1984-85, 14.39 lakh cases of IMFL and beer were sold through Bevco outlets in Kerala. By 1989-90, it increased to 19.9 lakh cases. By mid nineteen, ie by 1994-95, sale of IMFL and beer increased more than 2.5 times to reach 51.4 lakh cases. End of nineties saw further increase in sales. By 199-2000, sale of IMFL and Beer increased to 89.51 lakh cases. By 2004-05, sale increased to 146.18 lakh cases. And by 2011-12 sale of IMFL and beer more than doubled to 339.6 lakh cases.

During the above period, revenue from IMFl and beer also skyroctetted. In the mid eighties (1984-85) it was just Rs. 55.46 crores. By the end of eighties (1989-90) it more than doubled to Rs. 117.41 crores. By mid nineties revenue from IMFL 8 beer shot up to Rs. 353.91 crores, and the end of nineties it increased by nearly 4 times to Rs 1184. 65 crores. Revenue from IMFL and beer more than doubled to Rs. 2320.15 crores by 2004.05. And by 2011-12, revenue further increased nearly 4 times to Rs. 7861.84 crores.

Simultaneously contribution to state exchequer increased from Rs. 25.63 crores in 1984-85, to 92.07 crores in 1990-91. It further increased to Rs. 215.58 crores in 1994-95 to Rs. 903.56 crores by 1999-2000. By 2004-05, contribution to state exchequer increased to Rs. 1824.04 and by 2011-12, Rs. 6292.48 crores was the contribution to the state exchequer from sale of IMFL and beer through the 338 retail outlets Bevco.

                                                                     Table-1                                                                    

Share of liquor in Own revenue of Kerala (2002-03 to 2011-12) (Rs crores)

Year Liquor (1)

Sales tax + Excise duty)

States of own  revenue (2) (1)/(2)%
2002-03 1669.8 7981 20.92
2003-04 1781.43 8896 20.02
2004-05 2003.87 9783 20.48
2005-06 2263.13 10716 21.11
2006-07 2647.06 12880 20.55
2007-08 3145.26 14879 21.13
2008-09 3907.01 17549 22.26
2009-10 4515.16 19477 23.18
2010-11 5500.76 23653 23.25
2011-12 6616 28311 23.36

 

Source : Jose Sebastian (2014), Enhancing tax and Non-Tax sources of Revenue in Kerala : Option & strategies, Working paper series No-1, ISDG, Kerala, Table S,P 9.

From Table 1, it can be safely seen that income from sale tax and excise duty on liquour has been continuously increasing as a proportion of states own total revenue. In 2002-03, income from liquor contributed to 20.92 percent of states own revenue. By 2007-08, it increased to 21.13 percent and by 2011-12, income from liquor increased to 23.36 percent of states own total revenue.

From what has been explained above, as a result of the flawed policy initiatives in the field of liquor sales and tax structure, we have reached a stage wherein we are totally dependent on income from liquor for meeting our daily needs. The state is caught in a vicious circle of earning more income from liquor synonymous with more consumption of liquor. Courageous policy interventions and initiatives to bring down consumption of liquor thereby foregoing income from liquor and simultaneously makes serious efforts to mobilize the foregone income from other sources by drastically stepping up resource mobilization measures is the need of the hour.

Outright and blind exhortations that the state is ready to forego income from liquor will not serve the purpose and will remain only in the realm of political sloganeering.

 

Author:KM Shahjahan

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