A few days ago, the government decided to open the liquor shops during this lockdown. The very first day they opened, such as the situation outside these shops was the worst. It was almost as if social distancing had been laid to rest.
There was so much demand for alcohol, that some governments decided to impose 70% tax on alcohol.
For example, the governments of Delhi and Andhra Pradesh.
The question that arises here is what was the need to open the liquor shops so soon? And what have been the state governments been going through and what role does alcohol tax play here?
We will get to know all of this in today's article
.
Come, let us see
Take a look at this chart to understand why this is so.
This chart explains the avenues through which money goes to the state governments.
Where does the state earn from?
46% of the money comes from the taxes of the state government itself which is imposed on the people living in the state. And look at the breakdown of the 46% revenue that comes to the state government.
Exactly where these taxes are imposed and where the money is coming from.
40% of the money out of this 46% comes from State GST. And where is GST accrued from?
Whenever any goods or services are used, then the state GST is collected from there.
Now, what has happened in the lockdown?
The use of products and services has declined. The people are staying inside their homes
The goods are not being sold. Businesses have shut down.
So there has been a steep decline in state GST collection. The second spot is occupied by VAT. 21% of the entire tax collection accrued by the state government comes from the taxes imposed on petrol and diesel. Think about how big of a contribution do petrol and diesel have. And since cars are not plying in the lockdown, the demand for petrol and diesel is at an all-time low. So there's no money coming from this sector too.
On the third spot is the excise duty, which is imposed on liquor. It has a contribution of 12%
Only of alcohol tax. Prior to these shops opening, there was no money coming from here too
On the fourth spot is property transactions. This wasn't happening either, owing to the lockdown
5-6% of the money comes from a tax on vehicles. There weren't many sales of vehicles either
Some reports have shown that there were zero sales of cars in the month of April.
Obviously, how would there be any sale?
The people were inside their homes due to lockdown and no one was going to buy cars.
So all these sources of earning tax that was available with the government.
All these avenues dried up and money stopped coming in from them due to the lockdown.
Overall, a loss of 80-90% was observed in the revenue of all the states.
For example, the Chief Minister of Punjab said that he was expecting a sum of 3,300 crores as state revenue in the month of April. But only a sum of around 400 crores came in this year in the month of April.
The Chief Minister of Delhi said somewhat similar- that in the month of April last year. The Delhi state had got 3,500 crores as tax revenue. But only a sum of around 300 crores came in this year in the month of April. This is a direct drop of 90 drop. It is a severe loss.
This is why the lockdown is being withdrawn gradually and the businesses are being told to open slowly because no government can bear such a severe loss.
And this is the reason why liquor was so focussed upon and the liquor shops were opened suddenly.
Ideally, you'd never want the people of your country to drink very frequently because it is very harmful to their health.
Which country's government would want the citizens of its country to be unhealthy and sick people?
Also, if people get ill, then it increases the pressure on the healthcare system and it becomes more expensive for the government to maintain the healthcare system if more people fall ill.
But on the other hand, so much money comes in through the taxes imposed on alcohol, that it has no competition
The figures for the mist of the states run in a thousand crores. For example, Delhi earned 5,000 crores last year, only through the excise duty imposed on liquor.
Karnataka earned 21,000 crores last year.
This is the reason why the liquor stores have been opened up so soon in almost all the states
And some states have imposed an extra cess- an extra Corona Tax of 70% so that more money can be collected by selling alcohol and so that the revenue loss can be compensated for. And this is not the first time that an extra cess has been imposed on liquor.
Before this, Uttar Pradesh had also imposed an extra tax on liquor last year for Gau Raksha. They said that they would use the extra money generated for cow protection.
So the people that are buying liquor today are literally saving the economy. This is making such a huge difference- I am not even joking. The problems with the lines(queues) were nothing short of chaos. The governments should start its home delivery to avoid chaos.
And some governments have commenced (home delivery). For example, the government of Chhattisgarh has set up an online portal for the home delivery of alcohol.
And the results of this decision have been showing up very clearly. The very first day when the shops reopened. Uttar Pradesh, for example, earned 100 crores by selling alcohol.
So the question that arises here is what else can be done by the state governments to make up for the dearth of money? and what will the dry states like Bihar and Gujarat do? Since the alcohol isn't sold there normally, this income source is not available for them. So what can such states do in such a scenario?
The salaries would be slashed by approximately 25%.
The Puducherry government has also told its employees to remain prepared for a salary cut.
The Tamil Nadu government has frozen the increase in the dearness allowance and this would enable them to save around 7,000 crore rupees in this financial year.
The central government has also done something similar.
The governments across the country are adopting different ways to increase the revenue and to decrease the expenditure.
So that the financial loss due to the lockdown can be compensated for. These steps are called "austerity measures" in economics.
Talking about the dry states like Gujarat and Bihar, More difficult decisions need to be taken and harsher steps need to be taken to compensate for their financial losses because they do not have the option of the liquor tax.
When Bihar took the decision of banning alcohol in the entire state in 2016.
It was very clear right then that Bihar would incur a revenue loss of 4,000 crores annually
due to this alcohol ban.
There are some other negative consequences of this.
For instance, it isn't like there's absolutely no alcohol available in Gujarat and Bihar. We all know that it is still available illegally.
The people smuggle it.
What happens, in this case, is that when alcohol is being smuggled, then the profit of selling alcohol goes to the smugglers instead of going to the government. So in a way, the government is incurring an economic loss and the money is going to the smugglers.
Another downside is that the smuggled alcohols have no quality checks done on them, neither are their regulations. So, oftentimes, they can be dangerous.
It could be more dangerous for the health of the people.
On the other hand, increasing taxes on alcohol could be a way of decreasing alcohol consumption in a state.
Coming back to austerity measures, what do you think? I'd like to ask you. What are the other means through which the governments can earn money to improve their financial condition?
Write down in the comments below.
Keep in mind that no matter what decision the government takes, it will be controversial.
It is almost impossible to keep everyone happy because the money has to be earned from somewhere
I'd like to provide some suggestions here.
First- Taxes on petrol and diesel can be raised. But the governments have already done that
Because the oil prices have fallen so drastically. They even dropped into the negatives for a time, like I have explained in this article Negative oil Prices.
It is a very good opportunity for the state government to make money. So this is one approach.
Second- A lot of people suggest that an "Ultra-rich" tax should be imposed. An extra tax should be imposed on the extremely rich people in our country for a short time so that the government can earn money
My third suggestion is that new taxes like the alcohol tax should be imposed, which are for the benefit of the people.
For example- Fast food tax. Taxes on unhealthy foods.
I'm saying "benefit" because what happens in alcohol tax is that.
When the prices of alcohol are increased, then the people buy less, and the consumption drops
which is eventually better for the people. And the people that do buy pay more money and this is more beneficial for the government.
Similarly, a tax can be imposed on fast food as well.
As an example, I'd take the case of two countries- Hungary and Mexico. There is a tax imposed on fast food in both of these countries.
In 2011, in Hungary, the government imposed a fast-food tax of 4% on packaged food. And how was this tax imposed?. They said that the product categories with a high content of sugar and salt. For example, soft drinks, candies, salty snacks, fruit jams.
The tax would be imposed on these items.
A fast-food tax of around 8% was imposed in Mexico in 2013. And this tax was imposed on the non-essential food items which have a higher calorie density than 275 calories per 100g.
So this would mean food items that are extremely calorie dense and that increase obesity. So fast food taxes could be imposed this way.
This is why I listed these two examples so that we can draw inspiration from these two countries.
The fourth suggestion is that the frivolous expenditures by the governments should be stopped. No money on some useless statue should be spent.
Even now, the central government is wasting 20,000 crores on the central vista project.
This project, if you aren't aware- seeks to redevelop Central Delhi- the path from India Gate to Parliament. It is an extremely unnecessary thing and there's no need for this. But the government still wants to go ahead with it and spend 20,000 crores.
All of this needs to stop.
This money should instead be used where there is a dearth of money.
The fifth suggestion is that the funds of PM Cares should be utilized. So much money has been collected.
Where is that money being used? It should be utilized for these things.
In conclusion, I'd only like to say that this is a very difficult situation for the governments. It is extremely difficult to decide whether they should let the lockdowns remain in force
in order to keep the health of the people 100% safe.
But then this leads to job losses, collapsing businesses, and salary cuts. If this happens, the people would have no money for food eventually.
Or if they should relax the lockdowns and face the risk of the coronavirus on the health of the people.
It is extremely difficult to choose what to do and to what extent.
I hope you would have liked this article. Share it.
Help the information reach more and more people.
If you want to support my work, you can subscribe to the blog or join on WhatsApp.
We will meet again in the next article.
Thank you.
The question that arises here is what was the need to open the liquor shops so soon? And what have been the state governments been going through and what role does alcohol tax play here?
We will get to know all of this in today's article
.
Come, let us see
Brief Discussion of all states regarding Alcohol Tax
The first thing that you have to understand is that today, due to the lockdown, all the states across the country are going through a massive financial loss. There is a desperate dearth of money in all the state governments.Take a look at this chart to understand why this is so.
Where does the state earn from?
46% of the money comes from the taxes of the state government itself which is imposed on the people living in the state. And look at the breakdown of the 46% revenue that comes to the state government.
40% of the money out of this 46% comes from State GST. And where is GST accrued from?
Whenever any goods or services are used, then the state GST is collected from there.
Now, what has happened in the lockdown?
The use of products and services has declined. The people are staying inside their homes
The goods are not being sold. Businesses have shut down.
So there has been a steep decline in state GST collection. The second spot is occupied by VAT. 21% of the entire tax collection accrued by the state government comes from the taxes imposed on petrol and diesel. Think about how big of a contribution do petrol and diesel have. And since cars are not plying in the lockdown, the demand for petrol and diesel is at an all-time low. So there's no money coming from this sector too.
On the third spot is the excise duty, which is imposed on liquor. It has a contribution of 12%
Only of alcohol tax. Prior to these shops opening, there was no money coming from here too
On the fourth spot is property transactions. This wasn't happening either, owing to the lockdown
5-6% of the money comes from a tax on vehicles. There weren't many sales of vehicles either
Obviously, how would there be any sale?
The people were inside their homes due to lockdown and no one was going to buy cars.
So all these sources of earning tax that was available with the government.
All these avenues dried up and money stopped coming in from them due to the lockdown.
Overall, a loss of 80-90% was observed in the revenue of all the states.
For example, the Chief Minister of Punjab said that he was expecting a sum of 3,300 crores as state revenue in the month of April. But only a sum of around 400 crores came in this year in the month of April.
The Chief Minister of Delhi said somewhat similar- that in the month of April last year. The Delhi state had got 3,500 crores as tax revenue. But only a sum of around 300 crores came in this year in the month of April. This is a direct drop of 90 drop. It is a severe loss.
This is why the lockdown is being withdrawn gradually and the businesses are being told to open slowly because no government can bear such a severe loss.
And this is the reason why liquor was so focussed upon and the liquor shops were opened suddenly.
Alcohol Tax
Alcohol tax is a very interesting thing to ponder upon.Ideally, you'd never want the people of your country to drink very frequently because it is very harmful to their health.
Which country's government would want the citizens of its country to be unhealthy and sick people?
Also, if people get ill, then it increases the pressure on the healthcare system and it becomes more expensive for the government to maintain the healthcare system if more people fall ill.
But on the other hand, so much money comes in through the taxes imposed on alcohol, that it has no competition
The figures for the mist of the states run in a thousand crores. For example, Delhi earned 5,000 crores last year, only through the excise duty imposed on liquor.
Karnataka earned 21,000 crores last year.
This is the reason why the liquor stores have been opened up so soon in almost all the states
And some states have imposed an extra cess- an extra Corona Tax of 70% so that more money can be collected by selling alcohol and so that the revenue loss can be compensated for. And this is not the first time that an extra cess has been imposed on liquor.
Before this, Uttar Pradesh had also imposed an extra tax on liquor last year for Gau Raksha. They said that they would use the extra money generated for cow protection.
And some governments have commenced (home delivery). For example, the government of Chhattisgarh has set up an online portal for the home delivery of alcohol.
So the question that arises here is what else can be done by the state governments to make up for the dearth of money? and what will the dry states like Bihar and Gujarat do? Since the alcohol isn't sold there normally, this income source is not available for them. So what can such states do in such a scenario?
Other Ways to earn Money
Some states, like the Kerala state government, has decided to cut down the salaries of the state government employees to save money.
The Puducherry government has also told its employees to remain prepared for a salary cut.
The governments across the country are adopting different ways to increase the revenue and to decrease the expenditure.
So that the financial loss due to the lockdown can be compensated for. These steps are called "austerity measures" in economics.
DRY States
When Bihar took the decision of banning alcohol in the entire state in 2016.
due to this alcohol ban.
For instance, it isn't like there's absolutely no alcohol available in Gujarat and Bihar. We all know that it is still available illegally.
The people smuggle it.
What happens, in this case, is that when alcohol is being smuggled, then the profit of selling alcohol goes to the smugglers instead of going to the government. So in a way, the government is incurring an economic loss and the money is going to the smugglers.
Another downside is that the smuggled alcohols have no quality checks done on them, neither are their regulations. So, oftentimes, they can be dangerous.
It could be more dangerous for the health of the people.
On the other hand, increasing taxes on alcohol could be a way of decreasing alcohol consumption in a state.
Coming back to austerity measures, what do you think? I'd like to ask you. What are the other means through which the governments can earn money to improve their financial condition?
Write down in the comments below.
Keep in mind that no matter what decision the government takes, it will be controversial.
It is almost impossible to keep everyone happy because the money has to be earned from somewhere
I'd like to provide some suggestions here.
First- Taxes on petrol and diesel can be raised. But the governments have already done that
Because the oil prices have fallen so drastically. They even dropped into the negatives for a time, like I have explained in this article Negative oil Prices.
Second- A lot of people suggest that an "Ultra-rich" tax should be imposed. An extra tax should be imposed on the extremely rich people in our country for a short time so that the government can earn money
My third suggestion is that new taxes like the alcohol tax should be imposed, which are for the benefit of the people.
For example- Fast food tax. Taxes on unhealthy foods.
I'm saying "benefit" because what happens in alcohol tax is that.
When the prices of alcohol are increased, then the people buy less, and the consumption drops
which is eventually better for the people. And the people that do buy pay more money and this is more beneficial for the government.
Similarly, a tax can be imposed on fast food as well.
As an example, I'd take the case of two countries- Hungary and Mexico. There is a tax imposed on fast food in both of these countries.
In 2011, in Hungary, the government imposed a fast-food tax of 4% on packaged food. And how was this tax imposed?. They said that the product categories with a high content of sugar and salt. For example, soft drinks, candies, salty snacks, fruit jams.
A fast-food tax of around 8% was imposed in Mexico in 2013. And this tax was imposed on the non-essential food items which have a higher calorie density than 275 calories per 100g.
So this would mean food items that are extremely calorie dense and that increase obesity. So fast food taxes could be imposed this way.
This is why I listed these two examples so that we can draw inspiration from these two countries.
The fourth suggestion is that the frivolous expenditures by the governments should be stopped. No money on some useless statue should be spent.
Even now, the central government is wasting 20,000 crores on the central vista project.
This money should instead be used where there is a dearth of money.
The fifth suggestion is that the funds of PM Cares should be utilized. So much money has been collected.
Where is that money being used? It should be utilized for these things.
In conclusion, I'd only like to say that this is a very difficult situation for the governments. It is extremely difficult to decide whether they should let the lockdowns remain in force
in order to keep the health of the people 100% safe.
But then this leads to job losses, collapsing businesses, and salary cuts. If this happens, the people would have no money for food eventually.
Or if they should relax the lockdowns and face the risk of the coronavirus on the health of the people.
It is extremely difficult to choose what to do and to what extent.
I hope you would have liked this article. Share it.
Help the information reach more and more people.
If you want to support my work, you can subscribe to the blog or join on WhatsApp.
We will meet again in the next article.
Thank you.
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