Date:28/09/2004 URL: http://www.thehindubusinessline.com/2004/09/28/stories/2004092802521700.htm

Back Kerala likely to review turnover tax on IMFL

Boby Kurian

Bangalore , Sept. 27

THE Kerala Government is likely to review the 10 per cent turnover tax on Indian Made Foreign Liquor (IMFL) to provide relief to the industry, which is reeling under cost pressure due to unprecedented rise in the prices of rectified spirit (RS) and extra neutral alcohol (ENA).

Sources said that a Cabinet sub-committee formed three months back to look into the matter has recommended significant reduction in turnover tax and has also mulled over the possibility of merging it with sales tax.

"The sub-committee has recommended reduction in turnover tax. Though the administration is yet to make up its mind of the quantum of reduction, it is likely to be significant - to the extent of a drop to two per cent," they said.

It is learnt that the sub-committee had actually favoured dropping of turnover tax altogether, but couldn't recommend the same as the matter was pending before the Supreme Court.

This comes in the wake of several industry representations stating that companies were being forced to dishonour supply commitments of low-priced IMFL to Kerala State Beverages Corporation (KSBC), following a sharp rise in input costs.

(Cheap and regular rum and brandy hold sway over the Kerala market, pegged at over nine million cases annually.)

The industry had sought an ad hoc price increase to keep the supply lines of cheap spirits open, or alternatively, tax relief in some form, the sources said.

The litre price of ENA has shot up to Rs 42 from Rs 20 more than a year ago, following widespread failure in sugarcane crop in the country.

Most IMFL manufacturers, including majors like UB Sprits Division, have been cutting back on supplies of cheap products.

The introduction of turnover tax on IMFL and petroleum products in July 2001 had created much heat, with a section of the industry taking recourse to legal action.

Later, the industry had impressed upon the Government to convert the tax levied on manufacturing into a recoverable tax from the consumer or KSBC, which controls both wholesale and retail trade of IMFL in the State.

They had said that the Government was retaining nearly 84 per cent of the IMFL price, including KSBC's 36 per cent margin, while manufacturers were left with only 16 per cent of the final price consumer price.