The value added tax levied on the sale and purchase of goods for domestic consumption is called as Goods and Service Tax (GST). It is an indirect tax, but GST on alcohol is not levied. This is as per section 9(1) of the CGST Act, 2017 and section 5(1) of the IGST Act, 2017. Thus, alcoholic liquor meant for human consumption does not suffer GST.
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What is alcohol?
- Clinically, any orally consumed beverage which contains ethanol is considered as alcohol.
- Ethyl alcohol or Ethanol is the safest alcohol for human consumption.
What does alcohol for human consumption mean?
- Alcohols are rectified spirits made either from ENA, Ethanol, or Ethyl alcohol.
- Of all these, Extra Neutral Alcohol (ENA) can be used for both human or industrial consumption. Once denatured, they are only used for industrial consumption.
What is ENA?
- Extra Neutral Alcohol (ENA) is the primary raw material used for making alcoholic beverages with neutral smell and taste.
- It is the purest form of alcohol prepared from sugarcane, molasses, wheat, barley, and others.
Why is GST not levied on alcohol?
Primary reasons are as below:
- VAT is levied on alcohol which is managed by state governments. Now, state governments earn a major chunk of their revenue from this VAT other than the GST on other items.
- It is estimated that the taxes on beer and liquor fetch state governments around Rs 90,000 crore in taxes each year. If alcohol is curtailed under the GST segment, then all the tax revenue will go to central government.
- Furthermore, it is believed that high taxes on alcohol will render more people to consume it.
Why the prices of alcohol have increased in the name of GST?
- This is because the prices of raw materials required to make alcohol like ENA, barley, and others have increased. This increase in prices attributes to supply chain disruptions due to geo-political situation.
- Moreover, the transportation charges of these raw materials are also taxed under GST and hence the price rise of alcohol.
- The raw material used and freight charges now attracts 18% GST as compared to 14%-15% earlier.
What are the taxes on alcoholic beverages?
There are two types of taxes levied on alco-beverages:
- Excise duty
- VAT
So, Ethanol or Ethyl alcohol which has been made unfit for human consumption with denatured process is levied under GST rules and not all types of alcohols comes under GST.
