Liquor imports to be cheaper as government cuts additional duty

Mumbai: India has decided to scrap additional customs duty of up to 150 per cent on imported wines and spirits and make the tax structure on these products compatible with its international commitments.

The decision comes after the US and the European Union dragged India to the World Trade Organisation over high duties on wines and spirits.

"''We are planning to scrap the duty by July and allow states to impose taxes equivalent to the levy on domestic wine and spirit makers,"'' sources at the commerce ministry said.

The government proposes to do this through an executive order. States would also be able to impose additional taxes without having a central legislation allowing them to do so, sources said.

However, the taxes states would impose over and above the basic customs duty would be WTO compatible, as the state level taxes will be equal to the burden imposed on domestic industry.

India''s import duties on wines and spirits are as high as 264 per cent and 550 per cent. The government imposes additional duties on wines and spirits as a countervailing duty to compensate excise duties imposed by states on domestic liquor.

The domestic liquor lobby has been opposing lowering of import duties on spirits and wines.

A reduction in customs duties on liquor imports should, however, benefit liquor baron Vijay Mallya who just a week ago acquired the world''s fourth largest maker of Scotch whisky-Whyte & Mackay. Mallya''s UB group controls over 60 per cent of the domestic spirits market.

Liquor consumption in the country has been growing at 8 per cent annually, and that for wines at 17 per cent. EU has been very keen to break into this attractive market but the stiff rates have made imported liquor far more costly compared with domestic ones.

India will be among the top five fastest-growing markets for the next four years, market research body Euromonitor International said.

The duty cut will enable liquor majors like Diageo Plc and Pernod-Ricard SA to increase sales in India where the fastest wage growth in Asia gives consumers more to spend on wines, gins and whiskeys.