Below is the introduction from a report that I am compiling for a client in Australia. It gives a rough guide to how wine is taxed in India and shows why, although the consumption rate of wine in India is growing steadily, the quality of wine being consumed is not.
India has predominantly been a non-drinking country and has even embedded this principle in its constitution. Section 47 of the Directive Principle of State Policy declares that “the State shall endeavour to bring about prohibition of the consumption – except for medicinal purposes – of intoxicating drinks”. A majority of Indians not only shun alcohol, but also consider it taboo. No distinction is made between wine, beer and liquor or the possible health benefits of the former. Although the voting age was lowered to 18 a few years ago, the legal drinking age is still 25 in some states. The government is apparently ready to lower that to 21, yet fears a backlash and is reluctant to take a firm stand. This, in a country that downs 120 million cases of hard spirits represents quite a paradox.
The changing drinking habits of the people of India have changed the fortune of Indian wine market, witnessing a tremendous growth. Higher disposable incomes and growth in foreign tourists are some of the reasons for such growth. Present consumption of wine in India is very low with the average per capita consumption sitting at between 4.6 milliliters and 9.6 milliliters. However, considering the fact that about a decade earlier markets for wines did not exist at all, the present developments are positive. Wine market in India has been growing at around 30% annually over the last ten years and is expected to have a positive (although somewhat more restrained) growth in the future.
There does not, as yet appear to be a definitive report with accurate, objective statistics on the Indian wine market. Almost all data is anecdotal, and while vaguely accurate, is difficult to verify. From previous experience and with regards to imported wine, it is sometimes best to start off with data acquired from the source of the wine – the country exporting the wine. So, for example, for accurate data about Champagne imported into India, it is probably most accurate to approach the CIVC in France to see their data of the Champagne that they have on record as being exported to India. Furthermore, one cannot necessarily rely on data from wine importers in India without considering the proviso that all the wine imported into India is not necessarily sold.
Again, from experience, depletion reports from importers are not necessarily accurate, as the importer is often under pressure from some principals to achieve certain growth targets. Short of undertaking a physical stock take, it is hard to know the true inventory position and depletions of any importer.
It is an oft-repeated exercise: a principal/wine exporter requests a quarterly inventory and depletion report from their importer in India. The importer very often does not provide it or does so with a post-script that there are far too many regulatory changes in the market that appear to be stopping the flow of wine to their customers. This is somewhat true, but in fairness, state excise duties have really only been significantly raised in the state of Maharashtra (Mumbai, Pune) twice in the last 18 months and once in Karnataka.
The federal import duties, known locally as customs duty, were once levied at around 260% a bottle, including a countervailing duty that marginally favoured higher priced wines. Through WTO negotiations and agreements, the federal customs duty now sits at 150% of the CIF value of the wine. It is likely to come down further in the coming 18 months.
2003 brought a windfall for hotels with foreign exchange earnings. 5% of these earnings could now be earmarked for duty-free wines. Independent, stand alone restaurants were later given more generous privileges at 10% of their foreign income earnings (through credit card sales etc). The hotels with the largest quotas, however, often had markups as high as 500-700%, which did not encourage consumption and cancelled out the effect of the wines not having the customs duties added to their price. These markups are now regulated and can sit at a maximum of 200% for wines.
Wine distribution is largely dictated by the sales and excise policy of each state. The states are not only allowed autonomy in formulating policy for the sale of wine and alcohol, they also have fiscal powers to impose additional excise duties. Mumbai is the leading wine city in terms of volume consumption with 39% of total wine consumed, followed then by Delhi with 23%, Bangalore and Goa 9% respectively, and the rest of India accounting for the remaining 20% of the market. All of the 28 states and seven union territories operate as individual power centres that formulate their policy independently. In Delhi, for instance, an excise duty of Rs 150.50 per bottle is levied on every bottle of foreign wine sold irrespective of cost or quality. Moreover, the distributor must pay a label registration at an annual charge of Rs 5,000 – 10,000 per wine reference that they are wish to sell.
The state of Maharashtra once charged an excise duty of Rs 100 per litre for imported wines, but increased that to Rs 200 in 2005, presumably to protect its domestic wine industry. This was further increased to a whopping 150% of CIF in July 2007 and then again to 200% of CIF in November 2007. Maharashtra thus remains the state with the most restrictive state tax regime on wine in India. So, in Maharshtra (which historically accounts for 39% of all wine sales in India), this amounts to 150% (Federal) customs duty; 200% excise duty; 7% octroi; 25% supply chain margins and 20% value added tax (VAT). The retailer margin is additional. Effectively, a wine costing the importer 1 unit, ends up costing the consumer approximately 11 units.
The state of Karnataka (capital city: Bangalore now called Bengaluru) charges a state excise duty of Rs 370 per bulk litre of wine (amounting to Rs 277.50 per bottle) and applies this duty to domestic wines from other states in India also. This was increased in August 2008. Label registration is also required at Rs 10,000 per reference.