Brewing SolutionsTHE IMPACT OF GST ON BEER AND MICROBREWERIES

https://www.microbreweryindia.com/wp-content/uploads/2018/04/impact-of-gst-on-microbreweries-1280x512.jpg

With the “One Nation, One Tax” rolling out in a few weeks, it’s the ideal time to analyse and understand the effect of GST on the microbrewery industry. Goods and Services Tax, in short, GST has been all the rage for the last few months. From endless speculations to unfounded rumours, the industry is rife with discussions on how it will all work out.

WHY HAVE LIQUOR PRODUCTS BEEN KEPT OUT OF GST?

For now, Liquor products have been kept out of GST, and nothing short of a constitutional amendment can bring it under the umbrella of GST. This is because alcohol and petroleum taxes are two of the most dominant contributors to the State coffers. Different states impose varying taxes on liquor products, and this is the main reason for huge differences in the prices between states. Liquor has always been the cash cow for most state governments, and they aren’t willing to let go of it.

IS A PRICE INCREASE IN THE CARDS?

In spite of repeated requests from representatives of the alcoholic beverages industry, state governments were not ready to relinquish the lucrative revenue from liquor. As, a result, the prices of hard drinks can be expected to go up by 20%, beer by 15% and wine by 5%. However, increasing the prices of liquor is not as smooth as other consumer products. The industry has to get the approval of governments before revising prices. This further adds to the burden of brewers.

THE IMPACT OF THE INCREASE IN TAXES OF RAW MATERIALS

In a recent interview with Economic Times, Mr Shekhar Ramamurthy, the Managing Director of United Breweries stated that GST would make a significant impact on beer prices. This is because while the output product (beer) is out of GST, the input products (raw materials) are not exempt from the tax.

Currently, the input materials are taxed from 12 to 15% under excise duty, sales tax and VAT. Once GST rolls out, this tax can increase to 18%. The taxes on raw materials are expected to increase by 3 to 6%. This increase in input taxes is likely to cause an increase in the price of beer sold in the market.

SECOND-HAND BOTTLES AND THE TAXES

Currently, many beer manufacturers make use of second-hand bottles. The primary reason is that it’s cheaper than new bottles. This is because these bottles dont pass through a factory gate after the first use thereby don’t attract excise duty during the second, third or fourth use. All subsequent uses only incur sales tax.

On the contrary, if the GST council implements full taxation for second-hand bottles, it would increase the tax on such bottles from the current 5 to 6% to 12-18%.

The microbrewery industry is hopeful that the GST council will exempt second-hand bottles from GST. Used goods are reused not only in breweries but several other industries.

FREIGHT CHARGES AND TAXATION

The third factor that impacts micro-breweries is the transport costs. Currently, freight attracts 15% service tax. Once, July comes, and GST is implemented, the taxation will increase to 18%. This is a significant impact as most microbreweries depend on different methods of freight to ship their products to various parts of the country.

THE ISSUE IS NOT JUST BEING LEFT OUT OF GST, BUT FAR-REACHING

The demand from micro-brewers and the industry as a whole is to bring liquor under GST. This not only helps to make the business more profitable but also ensures that there is uniformity in prices across states.

Currently, different taxes by state governments make a huge difference in prices from one state to another. If liquor is brought under GST, it will ensure that the prices remain the same throughout the country. You no longer have to pay different prices for the same bottle of beer in Jammu, Tamil Nadu or wherever you’re located.

Let’s hope that the GST council considers all the issues listed here and makes quick plans to bring beer and other alcoholic beverages, under the “One Tax, One Nation” scheme all over the country.

Get right consultation on Microbreweries in India @ Rohit Jafa Brewing solutions. We can be checked on www.microbreweryindia.com | Talk to us @ (+91)9811233358.