Is LDF govt's liquor price hike a Kayamkulam Kochunni model in reverse?

Thiruvananthapuram: Is there anything fishy in the LDF Government's decision to withdraw the 5 per cent turnover tax on liquor manufacturers and make up for this loss by slapping a 4 per cent increase in liquor sales tax?

The Opposition UDF said there was. "Something is stinking rotten somewhere," is how Congress MLA P C Vishnunath put it during the discussion on Kerala General Sales Tax (Amendment) Bill, 2022.

However, Vishnunath conceded that he did not have proof of corruption.

The government said there was no need to insinuate anything nefarious. Its ministers gave sound reasons for the hike that on the face of it looked like an attempt to help liquor makers at the cost of the public.

Both excise minister M B Rajesh and finance minister K N Balagopal said the decision was taken to provide Kerala-based liquor manufacturers with a level playing field. They said the turnover tax was a burden suffered only by distilleries in Kerala, not by those outside the state.

On top of it was the galloping cost of spirit, the raw material for liquor production. Rajesh said it was Rs 70 a litre now, up from Rs 50.84 in 2017. Balagopal attributed this cost escalation to the Central Government's Bioethanol Policy that increased the percentage of spirit (ethanol) in petrol. He said this diverted spirit to the petroleum sector, creating a shortage for liquor manufacturers.

Together, these factors precipitated a major crisis in the liquor sector. "Many distilleries in Kerala wound up production. Liquor was in sudden short supply early this year," the excise minister said. "It led to a situation where consumers started to call up the minister directly," Rajesh said.

The finance minister said that a fall in sales for just 15 days had cost the government over Rs 80 crore by way of tax. "Imagine the revenue loss for an entire year," Balagopal said.

Nonetheless, the finance minister said the increase in liquor prices as a result of the 4 per cent increase in sales tax would be nominal. "There will be no increase in price for many brands. For some, it would be only Rs 10. For very rare items it can go up to Rs 20. That is all," the finance minister said.

But he gave a clear hint that this "nominal" hike should be considered only as a temporary reprieve. "We have not increased liquor prices in the last two years. But we will have to do it in the near future," Balagopal said.

Next month, when Balagopal presents the Budget, liquor prices might go up even higher. Liquor would be one source Balagopal is eyeing to bolster his non-tax revenues.

Now with the 4 per cent increase in KGST, the taxes on various kinds of liquor are as follows: beer - 116%, wine - 86%, IMFL above Rs 400 a bottle - 251%, and IMFL up to Rs 400 a bottle - 241%.