Liquor In Uttarakhand Set To Get More Expensive? Finance Dept Pushes For VAT Change

A policy disagreement has emerged between the state's Finance and Excise departments regarding the calculation of Value Added Tax (VAT) on excise. The Finance department is advocating for a return to an older method for calculating VAT, while the Excise department is pushing for the state to become VAT-free, similar to Uttar Pradesh. The matter has now been presented to the Chief Secretary's office for resolution.

Revenue And Smuggling Context

The Excise department is one of the highest revenue-generating departments in the state. Last year, it achieved a revenue target of Rs 4,500 crore, and the target for 2025-26 has been set at Rs 5,060 crore.

A significant factor in achieving this target is the control of liquor prices. However, prices in the state remain higher than in neighboring Himachal, which has led to high levels of liquor smuggling from both Himachal and Haryana. In response, the Excise department has focused on controlling prices over the last few years.

The Core Of The Disagreement: VAT Calculation

The dispute centers on the formula used to calculate VAT:

Current Method: VAT is calculated on the Excise Duty first. After that, the MGD (Minimum Guarantee Duty) is added to the price. This method results in a lower VAT, which helps keep liquor prices down.

Old Method (Favored by Finance): VAT was previously calculated after adding the Excise Duty and MGD together. This resulted in a higher VAT collection.

The Finance department's proposal to revert to the old method is likely to cause an increase in liquor prices.

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The Excise Department's Position

The Excise department opposes the change, arguing:

- Controlling liquor prices (using the current method) is generating Rs 350 to Rs 400 crore for the department.

- Reverting to the old calculation method would only yield an approximate benefit of Rs 50 crore.

- Given this, the department is advocating for the complete abolition of VAT, following the model of Uttar Pradesh.

- Commenting on the issue, Excise Commissioner Anuradha Pal stated that this is a "policy matter" and a decision will be taken at a higher level.

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