Special Corona Fee - Will that "really" bolster Delhi revenues from Alcohol?

Drinking the own Kool aid – A belief in the harmful idea just for high rewards.

From updating on the number of cases due to COVID-19, recovery rate, all the media houses and every news channel going berserk in the midst of a pandemic suddenly, as the states have decided to open the liquor shops across India due to the major excise tax, Value added taxes (VAT) loss to them, of course with limitations and restrictions, though. Crowds have flouted social distancing the very first day of re-opening of the liquor shops. In the light of the situation, Delhi Government came up with a special corona fee of 70% over and above MRP to prevent mammoths gathering at stores.

But, will this "Special Corona Fee" over and above MRP on alcohol increase the revenues of the State Govt? The answer is interesting! To understand this, we must unleash the cost and tax components on alcohol in Delhi especially. To keep it simple, there are few terms which are needed to be apprised of:

1.     Basic Price - This is a basic and intrinsic worth of an alcohol. This is a pure price does not include any state - tax component in it.

2.     Excise Duty - This is a certain percentage of the whole sale price. Let us say, 50%, 60% or even 200%. This percentage varies from state to state. That is why we often say that in Alco Bev, each state is a different country.

3.     Landing Price - This is a sum of basic price and excise Duty. This price gets locked in while every distributor who is licenced to sell the liquor goes for renewal of his licence every year with the Delhi Excise Department. This means, we cannot change the landing price or the WSP once this has been informed to the excise department at the beginning of the excise policy which comes every year.

4.     Now, VAT @ 20% is levied on this landing. This is landing and not MRP! This VAT goes to the Delhi Government.

5.     Retail Margin - After the summation of all the above, retail margin is added over and above the (landing+vat) amount. This straight away goes to the retail shop owners/groups for selling the alcohol to the consumer.

6.     VAT @ 20% is again charged on the retail margin amount. This again goes to the Delhi Government.

7.     Now, MRP - After all the above - MRP is arrived at. This is exactly what a consumer is billed for at the retail stores. So, in the whole chain - Delhi Government can collect only Excise and VAT in Point 2,4 and 6.

Interestingly, there are four corporations of Delhi Govt, which run government liquor shops namely under DSIIDC, DCCWS, DTTDC, DSCSC wholly under the control of Delhi Government and rest all are private vends.

Coming to the ground reality, special corona fee is supposed to be charged on the bill itself which might be a reality in case of the shops run by the above four corporations. Here also, might be! With people gathering in mammoth – God knows how many bills the counter person will be able to issue when he must sell the stock at large as well. But how many times have we gotten the bill by ourselves from the private retail liquor vends. We have only got it when asked from the person sitting at the counter. This fee though aims to protect the state revenues along maintaining social distancing. Excise and VAT for the stocks which is selling now after the lockdown has already been received by the government back in the month of Feb and March. The fee is more likely to generate more of a black money, unbilled sales, exploitation of the consumers et all.

Further, the above is what is the online infrastructure of Delhi Govt to collect taxes on alcohol. If Special Corona Fee has been built into their online tool which can automatically capture the excise bar code sticker which is sticker on the cap of the bottle, in that case, this special fee can flow straight to the govt, no doubt about that.

The concern which arises is after the lock down – was opening the liquor shops well planned since Day 1 and the revamp of all the online software tolls of excise department were in progress. I believe, no! as most of the staff was at home and this overhauling related to revenue in online software does seem an impractical idea.

All in All, Will this help Delhi or Delhi Government? The times are going to tell. For now, with Special Corona Fee into picture, Delhi largely seems to drink its own Kool aid at present.

Take care and Stay Safe.

Drink Responsibly! ??

The views are personal, and any kind of feedback is always welcome.

Yeeshu Sehgal

Chartered Accountant