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Impact of GST on Alcohol

impact of gst on alcohol

Alcohol is a so-called social evil that many consume, despite the efforts of society and the government to thwart people from drinking. However, when anything in consumed or indulged in excess, the warnings hold true. The alcohol industry and consumers of alcohol have reason to cheer as Alcohol is exempt under GST, which is explained in this guide.

GST Not Applicable on Alcohol

Alcohol is exempt under Goods and Services Act (GST). It will take some more time to amend and bring it under the new tax regime. However, the government is planning to increase the price of alcohol.
Experts believe that there is going to be a negative impact on alcohol under GST, unless it is properly managed. The decision can impact the industry negatively. Considering the present share market, liquor companies have already dropped their share prices.

Despite alcohol being out of GST, there could be some exemptions in implementation which can lead to an increase in the cost of beer. It is speculated that there is going to be a huge increase in the price of beer.

Price Increase of Alcoholic Beverages

According to the MD of United Breweries, Ramamurthy, “We have to register ourselves with GST at each location we operate in. Our input materials at present attract excise duty, sales tax, VAT at between 12% and 15%, whereas under GST, this is likely to be at 18%. So, there is a clear increase in tax on most of the input materials by between 3% and 6%,” Therefore, it can be assumed that there is going be an increase in the cost of alcohol, which means the manufacturing companies will pass on the burden to customers.

Ramamurthy also stated the industry operates with second-hand bottles. Under the current tax regime, second-hand bottles are not subject to excise duty, because they do not pass through the factory gates, multiple times, so, they only incur local sales tax. This issue in the industry is discussed with the GST Council. He further said the industry is hopeful that the council will take a more pragmatic view because it impacts not just those who use second-hand bottles but also a lot of other industries who deal in used goods.

If second-hand bottles are taxed at full GST rate, once again the tax impact on the bottles would go from 5-6%, which is at present to 12-18%. From 1st of July 2018, prices of alcoholic beverages are likely to be increased by 3-5% on wine and whiskey and 12-15% on beer. While alcohol is exempt from GST, the raw materials used for the production are charged with tax at 18% and 28%. This is going to have a huge impact on the consumption of alcohol. If the prices increase, the consumption might decrease which will affect the revenue of the nation.
Lastly, the rate increase on freight from 15% to 18% under GST, is another concern for industry players.

For your queries relating to the latest updates to GST, GST registration, compliance and reconciliation, enlist the aid of the gst experts at H&R Block India.

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CA Chetan Shinde
CA Chetan Shinde
Chetan is the Lead Tax Advisor at H&R Block (India) with an experience of almost half a decade in audit and taxation. His professional areas of interest are GST advisory and statutory audit. Apart from taxation, he is passionate about social causes and works extensively towards rural school development and literacy.