The snake-like queues at alcohol outlets in Kerala might have been the ones to have gone viral, but two other nearby states are in fact spending the most on liquor, if a new study is to be believed.
Households from the two Telugu-speaking states of Andhra Pradesh and Telangana show the highest average annual per capita consumption expenditure on alcohol across the country, according to the study by the National Institute of Public Finance and Policy (NIPFP), an autonomous research institute under the Ministry of Finance.
If the NSSO's 2011-12 Household Consumption Expenditure survey shows Andhra Pradesh forking out the highest average annual per capita consumption expenditure on alcohol at Rs 620, CMIE's Consumer Pyramids Household Survey (SPHS) indicates that households in Telangana spend the highest average annual per capita consumption expenditure at Rs 1,623 (current prices for 2022-23).
The state with the lowest expenditure, both based on NSSO and CMIE data, is Uttar Pradesh at Rs 75 and Rs 49 respectively.
According to NSSO's survey data, other major states with high expenditure include Kerala at Rs 486, Himachal Pradesh at Rs 457, Punjab at Rs 453, Tamil Nadu at Rs 330 and Rajasthan at Rs 308.
Likewise, based on CMIE data, other states with high average annual per capita consumption expenditure at current prices for 2022-23 include Andhra Pradesh at Rs 1,306,Chhattisgarh at Rs 1,227, Punjab at Rs 1,245, and Odisha at Rs 1,156.
The lowest tax collecting state (on alcoholic beverages) was Jharkhand at 67% and the highest was in Goa at 722%.
The findings are part of a working paper titled Revenue Mobilisation from Taxes on Alcoholic Beverages by the NIPFP. The authors assessed both the NSSO's data on household consumption expenditure for 2011-12, as well as estimates based on the CMIE surveys for the period 2014-15 to 2022-23 besides State finances.
State excise is the third largest source of the state's own tax revenue (OTR) and includes consumption of alcoholic beverages like IMFL, country liquor, beer and other narcotics such as opium, Indian hemp and other narcotic drugs. Some states also collect sales tax on alcoholic beverages in addition to state excise. Combined revenue from the state excise and sales tax on alcoholic beverages constitutes a major share of the OTR.
While the tax buoyancy in the total GST collections improved, states are yet to reap the benefits in terms of higher share of State GST collection in nominal GSDP vs the revenue that is subsumed into the GST. The paper, thus attempts to explore options to initiate reforms in the taxation of alcoholic beverages for additional revenue mobilisation.
One of the key data points is the state excise collections as a percentage of production and consumption of alcoholic beverages. To arrive at each state-wise excise collections, the authors sourced data from the Annual Survey of Industries and the National Accounts Statistics and found two things. One, the state excise collections as a percentage of production increased from 164% in FY12 to 243% in FY22. Two, state excise collections as a percentage of consumption increased from 160% in FY12 to 252% in FY22.
For some states, the average monthly per capital consumption expenditure on alcoholic beverages is higher in rural areas like Andhra Pradesh, Bihar, Goa, Jharkhand, Kerala, Karnataka, Maharashtra, Madhya Pradesh, Punjab, Rajasthan, Tamil Nadu, and Tripura than urban areas. On the other hand, states with higher spends across urban areas than rural include Assam, Chhattisgarh, Himachal Pradesh, Haryana, Odisha, Uttarakhand, Uttar Pradesh and West Bengal.
As per CMIE survey's, except for Telangana, the average per capita annual expenditure fell during the pandemic year 2020-21 as against earlier years for all sates. Except for a few states, the average annual per capita consumption expenditure fell during 2019-23 compared to 2014-19. Out of 18 states, 11 states saw a decline in consumption in 2019-20 compared to 2018-19 and 9 states in 2018-19 compared to 2017-18. Per capital consumption expenditure increased post-pandemic and consumption again reached the pre-Covid pandemic level in many states.
The authors, who crunched the state-wise data, determined some underlying trends in alcohol consumption.
States with higher per capita income and higher share of urban population saw higher state excise collections. Similarly, states where the share of gross value addition by the selected service sector like communications, real estate, financial services and manufacturing sector as against agriculture sector have higher have higher state excise collections.
In other words, the structural composition of a state's economic activity plays a crucial role in augmenting excise revenue, they noted. Higher footfalls of foreign tourists mobilise more excise revenue as against domestic tourist footfalls.
The analysis also shows that states where beverage corporations control only wholesale distribution are generating more revenue from state excise duties than states where both wholesale and retail trades are with either the public or private sector. The majority of states are involved in controlling ex-distillery prices. Some states also control final consumer prices.
Except Himachal Pradesh and Karnataka, all states have a state excise and sales tax on alcoholic beverages. In Karnataka, sales tax is subsumed into excise as an additional duty on beer, IMFL, fenny and wine. For most states, state excise constitutes more than three-fourths of total tax collection from alcoholic beverages. However, there's no uniform percentage share of sales tax/VAT portions in overall tax collection from alcoholic beverages across states.
For instance, in Karnataka and Tamil Nadu, more than 78% of aggregate tax collection comes from either sales tax or additional excise duty, while for Assam, Maharashtra, Tripura, and West Bengal, the average share of sales tax in combined tax collection stood at 35-36%. For Odisha, and Jharkhand, it's 26% and for Rajasthan, it's 14%. For Chhattisgarh, the average share of sales tax/VAT on combined revenue from alcoholic beverages is 1.66% for 201-2-14 to 2019-20. On average, Uttar Pradesh collects 6.93% of combined revenue from sales tax and/or central sales tax on alcoholic beverages.
That said, household consumption expenditure survey may not capture the actual consumption expenditure due to the respondents reluctance to disclose actual consumption habits. Besides, consumption also happens outside household premises and hence it cannot capture actual expenditures. Then there are tourists and expenses incurred at hotels by business delegates. Therefore, in the absence of official sales statistics at the state level, it's difficult to estimate consumption, as under reporting of both production and consumption cannot be ruled out.
