Indian economy is the world’s fifth-largest economy. The economic growth India has seen in the past few years is off all the charts. In contrary to this, today it’s upside-down. It is perhaps the country’s worst economic crisis after independence. Government is undertaking all the possible measure in this particular one it is- the levy of alcohol tax as corona fee.


We all will remember this pandemic as being the seesaw of the financial crisis on one side and health crisis on the other side. The government is rigorously working to bring the situation at ease. Due to lock-down, the economy is at a standstill. The lock-down period is extended to lessen the rising positive cases of COVID-19. Putting an end to such lock-down is yet a faraway thought considering the rise in active cases in the country. There is an urgent need all over the world to mitigate losses and conquer the challenge. Consequently, the Government is diligently working towards the exit strategy.

The government has allowed alcohol shops in green and orange zones to open from the 4th of May. The government made this announcement pursuant to the extension of the lock-down by two weeks. A notification by the Ministry of Home Affairs issuing guidelines for the extended lock-down stated that – shops selling liquor must ensure that customers maintain a minimum distance of six feet and that no more than five persons are present at one time at the shop. 1MHA Order Dt. 1.5.2020 to extend Lock-down period for 2 weeks w.e.f. 4.5.2020 with new guidelines,

A major downturn the country faces is the generation of revenue (earnings). All the budget estimation made by the government before the outbreak holds no value right now. New strategies are being set.

Economists have lowered the forecast of GDP growth between 0-2 per cent, keeping in mind all the relaxations. It will adversely impact manufacturing and services.

After 40 days of the lock-down, the government announced re-opening of liquor shops. Before addressing the main issue – how re-opening of alcohol shops will contribute to the state revenue? first, we understand the taxation of liquor and related products.

Tax – liquor and related product

Corona Alcohol Tax

The consumption of alcohol in India in 2020 is estimated to be 6.53 billion litres. 2Forecasted alcoholic beverage consumption in India from 2016 to 2020, There has been a steady increase in the consumption of alcohol over the years. This can be attributed to components like rising levels of disposable income and a growing urban population among others.

Revenue explained

Alcohol in India is not yet under the purview of Goods and Service Tax (GST) which is the central indirect tax regime. Alcohol still falls under the other taxes that contribute to its final price, that is VAT (Value added tax) and excise duty, which in turn contributes to the revenue of the states.

States earn a large amount of revenue from the sale of liquor

This product is not under GST primarily to ensure that the state governments continue to have a strong inflow of revenue (other than what they get from GST) and also, to keep the prices of liquor and beer high to limit consumption.

The revenue generated from liquor depends on the volumes sold, thereby it is again kept out of the GST- ambit. In 2019, Uttar Pradesh made a whopping Rs 25,000 crore from liquor. 3published on 5 May 2020, Tax on alcohol: why more states will increase liquor prices, Another reason for the increase in the cost of liquor is tax applicability on the transportation of liquor and freight charges. Previously, transportation and freight charges attracted serve tax of around 15 per cent. However, Post-GST this is taxed at 18 per cent. Registration of liquor brands (licenses), fines, confiscation etc, are the secondary sources of revenue from alcohol to states.

Among other major earners of revenue from liquor sales include Karnataka (Rs 19,750 crore), Maharashtra (Rs 15,343.08 crore), West Bengal (Rs 10,554.36 crore) and Telangana (Rs 10,313.68 crore). The data forms part of the report before the outbreak of the novel coronavirus.

Understanding GST

To avoid any confusion lets understand the difference between the centre GST (CGST) and the State GST (SGST) and the integrated GST (IGST)-The simple point of difference is Intra-state (within one state) supply of goods and services attracts both SGST and CGST. Inter-state (one state to another) supply of goods and services attracted IGST, the revenue collected from CGST and IGST goes to the central government. Moreover, the revenue collected from SGST goes to state government.

Nonetheless, such exclusion (GST) has also led to the rise in the overall cost due to the increased taxes on the inputs (raw materials). Further, the inputs (raw material such as spirit) used to manufacture liquor were taxed at 12-15% under the VAT regime before GST. However, after the introduction of GST, most of the input (raw materials) now attract 18% GST resulting in increased input cost. This rise in taxes on the inputs passes on to the end customers.

To prove the above statement, let us compare the revenue from liquor(excise) in Pre and Post GST introduction: In 2016-2017, i.e. before the introduction of GST, the state excise accounted for about Rs. 1,03,49,301 lakhs whereas, in 2017-2018 (post-GST), the state excise revenue was about Rs. 1,26,68,905.7 lakhs. 4state finance accounts report, 2016-2018,

Situation today

Fast forward to 2020, due to the ongoing lock-down, the country is experiencing a major economic crisis. To cope up with the economic crisis, the government announced re-opening of liquor shops. After such an announcement, there was a visible increase in the number of people on the street, long queues were formed outside the shops. Moreover, looking at it as an opportunity to compensate for the loss in the revenue, the Delhi government announced a 70 per cent increase (special corona fee) on liquor. West Bengal has imposed 30 per cent tax on MRP. Andhra Pradesh ordered two successive hikes. The southern states also announced a 50 per cent hike in the prices after a 25 per cent increase the previous day. Punjab is one of the major consumers of alcohol has also declared a hike in the prices.

The levies on alcohol make-up on an average of 10 to 15 per cent of States’ Own Tax Revenue (SOTR) for the majority of states. This makes liquor levies the second largest contributor to the state exchequer.

According to the Reserve Bank of India’s. 5State Finances: A Study of Budgets of 2019-20′ report published in September 2019,

The rationale used by the government

Corona Alcohol Tax | Explained

We know that the health crisis has halted most of the economic activities, apart from those that can be conducted by work from home. There is, of course, a good enough reason for the government to halt economic activities. And it is also understandable that the government has to boost its economy.

Is the solution for all of the combined problems, the re-opening of alcohol shops? Why did the government decide out of all to re-open the liquor shops suddenly?

To truly grasp the solution, first understand that the States have two means of accumulating revenue.  SOTR, a share in central taxes as per finance commission’s recommendations, SONTR (States’ own Non-Tax Revenue) and grants from the centre are the sources of revenue for the state government.

The answer lies in understanding and examining the sources of revenue for the state government: 6FY18-FY20, India’s ratings and research,

  1. States own tax revenue contributes about 46 per cent of the total revenue. It includes state GST- 39.9 per cent, VAT (mainly fuel)- 21.5 per cent, Excise (mainly liquor)- 11.9 per cent, property and capital transaction- 11.2 per cent, tax on vehicles- 5.7 per cent and others- 9.8 per cent
  2. State’s non-tax revenue contributes about 8 per cent.
  3. Moreover, the proportion of grants amounts to 20 per cent
  4. State receives about 26 per cent from the central government as its share in the central taxes.

Due to a massive decline in sales of non-essential items, service industry, etc has led to a huge downfall in the level of the revenue to the states. This has brought a huge impact on the state GST majorly which contributes towards the state revenue. Also, due to the increasing panic, the current requirement is to stay at home. And so, very few people can be seen on the roads. This has resulted in reduced consumption of fuel which has, in turn, resulted in the decline of the revenue. Additionally, before the re-opening of the alcohol shops, this revenue also stood at zero. Capital goods and automobile purchases went down.

Indisputably, state government suffered about 80-90 per cent loss from its own tax revenue.

Accordingly, to compensate for all such losses state governments have declared such percentages on alcohol. This will obviously not be able to recover all the losses. This step will help the situation get better than it is right now economically of course. In addition to this, the oil prices dropped to negative. The government has also announced an increment in oil. Nevertheless, presently the government can sell these fuels at low prices after all the drop in the level of price. But the prices of oil in India are still as high as they were before. This will much like the alcohol tax help the government in the collection of revenue and help in improving the economic condition bit by bit.

Many state governments also started with home delivery of alcohol such as Chhattisgarh. Along with that, Zomato the food delivery app is in line to deliver such service to the public at large. Besides, many other states are yet to give their declaration on the same. This is a very interesting thought as social distancing is still the need of an hour. Home delivery will again help in the rise of such sales, which will again contribute to the revenue.


In conclusion, the step taken by the state government of imposing tax percentage on alcohol will firstly help the dropping economy. Also, the present rise in the consumption of alcohol will thereby drop due to the additional charges imposed. This will again benefit the people with respect to their good health. Thereafter, this will bring down the pressure on the health care system.

Apart from this state government is also taking many other initiatives to increase its revenue.

  1. 1. The hike on dearness allowances for the government employees (central government employees including armed forces) has been put on hold.7 published on 23 April 2020, the centre puts DA hike for government employees on hold amid coronavirus pandemic, (saving of about 1.2 crores)
  2. MPLAD (Member of parliament local area development) funds have been wholly scrapped for 2 years. this will, in turn, be used for managing health services. 8published on 6 April 2020, MLAD funds scrapped for 2 years, (saving of about 7900 crores)
  3. Salaries of ministers, prime minister, president and members of parliament were cut by 30 per cent. 9published on 7 April 2020, President, PM, MPs to take a 30 per cent pay cut a year amid virus woes,

As a whole, the government is trying to increase its revenue and decrease its spending. This in economics is called austerity measures. Austerity measures are attempts to significantly curtail government spending and putting effort to stimulate revenue. Thereby, state governments are taking such measures to cut down their spending and push the revenue for better economic condition.


Such other moves which government can consider would be –

  1. Imposing taxes on junk food, just like Hungary did in the past. This will again bring down the consumption of such fast food and will better the economic situation.
  2. Charging corona fee on tobacco (gutka, cigarette, bidi, etc)
  3. Imposing the extra charges in the form of corona relief for the rich people (just like swaach Bharat tax). This will help the government in the accumulation of revenue.
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Comments to: Corona Alcohol Tax | Explained
  • May 14, 2020

    We can clearly see how much effort you’ve put into this. Thanks for sharing information of this kind.

  • May 14, 2020

    Very informative! Thanks for explaining it so well. 😊

  • May 15, 2020

    Every point is clearly explained. Makes it easy to understand. Good job.

  • May 22, 2020

    Very well researched
    Expressed clearly
    Appreciate your efforts
    Keep it up

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