After increasing the annual registration fee for Licence from Rs.2.0 lakhs to Rs.5.0 lakhs, the Delhi government is believed to have taken the decision to hike the excise duty on wine and beer to 25% of the MRP, delWine has learnt from reliable sources.

The increase will be uniform percentage increase, irrespective of the cost (assessable value) of wine. This is unlike Maharashtra where 200% duty is charged on the assessable value. The notification expected in a day or two will replace the existing fixed excise duty of Rs. 150 a bottle on all imported wines.

Liquor and spirits will attract duties at the slab rates. A bottle with an MRP of up to Rs.3000 will attract a uniform duty of 30%. The medium ranged bottles costing Rs.3000-5000 will draw Rs. 900 +20% of the MRP whereas those costing above Rs.5000 as the Maximum Retail Price would bring in Rs.1300 and 10% to the excise department.

While the earlier duty told heavily on the price of a cheaper wine bottle costing around Rs.100 ($2.5) CIF, the proposed structure will fall heavily on the premium wines making their prices higher by around 30% or more.

The move will negate all benefits accruing due to the removal of ACD last July under pressure from WTO. With the stroke of a pen the hapless customer has been caught in the crossfire between WTO and the governments so far as fine wines are concerned.

The excise duty might not change much for wines costing around Rs.120 a bottle. But if one compares the duty structure of fine wines with Maharashtra, the proposed excise would result in an increase of over 140% for Delhi as compared to 200% in Mumbai. The following example with simplified calculations helps illustrate the point.

For a premium wine costing say Rs.500 ($12.50), the customs duty would remain the same @150% +SAD @4% (refundable-but difficult to get back; anyway I have taken it at 160% only as a reference. I have assumed the margins and expenses at a flat 70% on the basic cost of wine (in fact, they would be higher).

The excise duty increase at 25% of MRP, according to the proposed policy works out to Rs.707, which is 141% of the assessable value.

A similar calculation for an inexpensive wine of assessable value Rs.100, would end up at Rs.576 in Delhi and Rs.636 in Mumbai but the new excise ruling would make it cheaper by Rs.11 at an MRP of Rs. 565.

Though Delhi has no problem of wine producers as it is only a consuming state, it is ironic that the new policy would make the life of Indian wines more difficult, making the cheap imports even cheaper.

Another category where life will become more difficult is the hotels that have been enjoying duty free wines at the low excise duties on fine wines. Unknown to many, they are already under the scanner for overcharging on their alcoholic beverages with the government having given them a final warning to bring the prices down or else. The increase in excise duties would make their job doubly difficult undoubtedly.

However, the proposed policy will bring cheers to the Haryana government, wholesalers and retailers. The 500-rupee bottle will still cost around Rs. 2000 in Gurgaon as they do not have any excise duty, apart from the annual L1/L2 license charges. A price difference of Rs.828 would mean that a lot of Delhi residents will shift to Gurgaon for their purchases.

Interestingly, the central government may not have been able to check the possible under-invoicing through the customs duty policy, but making the excise dependent upon the MRP, would certainly make it more difficult to save taxes through that route anymore.

With the premium wines getting beyond the reach of the vast majority, the growth of Indian wine market is all set to be dictated by cheap wines. Very soon, India would be known around the world as the two-buck-chuck nation and Fred Franzia, owner of Bronco Wine Company and Charles Shaw winery who is considered Father of the Two-Buck-Chuck would expect a royalty.

And Maharashtra would get the award for showing the direction.

Subhash Arora
March 3, 2008