As we know , Aam Aadmi Party, the Delhi government announced a “70% special corona fee” on alcohol. The decision was also encouraged by the huge rush at alcohol stores which opened for the first time, since the lockdown was announced. After this, Haryana also plans to levy a special covid cess. The special cess could create arbitrage opportunity with other states like Uttar Pradesh, which are yet to levy such a cess.
Post lockdown pandemic, Income from liquor cess is a key source of income for states. The Delhi government’s move may affect the state’s liquor sales once inter-state movement is allowed. State governments had struggled hard to keep liquor and auto fuels like petrol and diesel out of Goods and Service Tax (GST), so that it becomes easier for them to boost revenue collections when needed.
The liquor industry contributes about ₹2.5 trillion a year to state governments by way of excise duty and in some states as value added tax. The financial health of states already deteriorating due to the economic slowdown and worsened due to the national lockdown, which brought the economy on a halt.
Even in a situation like this, Punjab finance minister Manpreet Singh Badal, at a webinar hosted by the Gulati Institute of Finance and Taxation (GIFT) in Kerala said that the combined fiscal deficit of central and state governments this financial year could reach 10% of GDP without making any extra spending to fight back the pandemic, due to the fall in economic activity.