The Hindu Business Line : EU, US will monitor liquor duty decision

Bangalore, July 13 The European Union and the US may ask WTO to suspend panel proceedings against India if the implementation of the decision to scrap additional duties on imported liquor is on track.

Officials with the Scotch Whisky Association (SWA), which lobbied against high import tariffs by India,told Business Line that the heat may be off on the government if it ensures that the States implement the legislation in a non-di scriminatory manner.

India, early this month, scrapped the customs duty which subjects all imported liquor to an additional duty of between 25 per cent and 550 per cent.

But according to the SWA, this may not be enough if the individual States decide to increase taxes on imported spirits thereby, neutralising the government’s decision to scrap additional customs duty. All the States can impose taxes separately on all imported goods at the state-level.

An SWA spokesperson said the EU (and the US) will closely monitor the implementation of the decision on scrapping additional customs duty on imported spirits and wines. “On that basis they will then decide what to do next in relation to the current WTO (World Trade Organisation) dispute settlement panel procedures,” the spokesperson said.

“We await further details of the draft legislation allowing States to introduce a countervailing duty on imported spirits and wines,” the spokesperson said. He said under the WTO rules, the Indian Government should ensure that the States implement the legislation in a non-discriminatory manner. The SWA will be assessing the Bill as it comes forward.

Imbalance in taxation

Under WTO rules, the States will have to carry this out in a non-discriminatory manner which means that both domestic and imported spirit drinks must be subject to the same level of taxation. That may lead to the tax burden going down in some States and up in other States. “That is acceptable provided the legislation is implemented in such a way that imported and domestic spirits are competing on non-discriminatory, equal terms,” the spokesperson said.

Analysts tracking the industry say that if the States too fall in line with the Centre’s decision, there could be an increase in revenues by as much as 500 per cent. According to a Rabo Bank analysis, there will be a 97 per cent shift of sales from the grey market to the legal route once the decision is implemented.

Analysts said the fear that domestic spirits’ brand could be affected because of the scrapping of the additional duties was unwarranted because all foreign spirits either in the Bottled in Indian Origin or in Bottled in India are in the over Rs 600 category and have less than 1 per cent share.

Most domestic spirits’ brands operate in the Rs 100–Rs 350 category. Despite scrapping the duties, these spirits will not fall below Rs 600, analysts say.

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