The state government of Mumbai has increased the value added tax (VAT) on alcoholic drinks served in bars and restaurants from 5% to 10% starting from 1st November. The move is expected to double the annual revenue from VAT on liquor served in these establishments. However, there are concerns about tax evasion in the industry.
Alcoholic drinks served in bars and restaurants will cost more from November 1 as the state government has increased the value added tax (VAT) on it to 10% from the existing 5%.
Currently, VAT on liquor served in 18,000 bars and restaurants across the state is 5% and is levied on the price at which it is served, which is much above the MRP of the bottle and sold by pegs.
The imposition of the VAT is over and above excise duty and the VAT served at the manufacturing point and the sale at the shops. The tax on the liquor served in hotels above 4 star is 20% though the chunk of the tax collected from the star hotels is just about 20% of the total collection.
“The current annual revenue from VAT on liquor served in these restaurants is about ₹700, which is expected to be doubled after the hike. We also expect a little drop in sales initially as the knee-jerk reaction of the decision, but it will be regularised gradually,” said an official from GST department. The notification was issued by the government on Thursday. The hike has been initiated after 12 years.
The annual sale of the Indian Made Foreign Liquor is around 28 crore litres, of which 8.5 crore come from bars and restaurants. Similarly, of the total sale of beer of 33 crore litres, 50% comes from these restaurants, while the remaining is over the counter.
The decision was part of the suggestions given by various departments to the state finance department to increase the revenue in August this year. GST department had suggested a hike of 10 to 15% that would help the increase in revenue.
Experts from the industry and the finance department, however, pointed to the evasion of taxes by bars and restaurants by fudging bills. They claimed, sales in many bars and restaurants are unaccounted. “The revenue collection from the VAT, collected by the GST department should be over ₹1000 crore,” said an official from the finance department.
“There is excise duty and VAT levied on liquor at the manufacturing and selling point. The GST department is taking all measures to plug the evasions,” said Shaila A, secretary finance department.
Source: Hindustan Times
