Date:26/08/2005 URL: http://www.thehindubusinessline.com/2005/08/26/stories/2005082603271900.htm

Back Leakages plugged in IMFL duty collections in Karnataka

Anjali Prayag
C. Shivkumar

Bangalore , Aug. 25

IT'S probably time to say `cheers' to a State-owned enterprise that has plugged leakages in duty collections of Indian Made Foreign Liquor (IMFL) sales in Karnataka.

The State, once notorious for duty evasion and sales of seconds (non-duty paid alcohol), has seen a turnaround in revenue realisation on IMFL. With tight monitoring and a rationalised excise structure, excise revenue collection through Karnataka State Beverages Corporation Ltd (KSBCL) has trebled. Sources said as a result, excise duty evasions declined to just eight per cent.

They said if this trend was sustained, excise realisation for this year on IMFL would be over Rs 1,300 crore — well above the targeted revenue estimate of Rs 1,100 crore. The sources said gross excise revenues, which also cover arrack, were likely to overshoot this year's budgeted estimate of Rs 2,997 crore. In fact, this level of realisation was far better than the rest of the country and the neighbouring States. In Tamil Nadu, Andhra Pradesh and Kerala, the duty evasion was to the extent of 30 per cent of the sales, the sources said.

Till last year, excise realisation on IMFL in Karnataka was only about Rs 600 crore. The increased realisation implies that now more than 90 per cent of the IMFL sold in the State is generating revenues. Duties for liquor in Karnataka are currently 31 per cent.

Karnataka had shown a static consumption pattern of IMFL (18 lakh litres) for nearly five years (1998-2003), thus yielding revenues of Rs 45-50 crore a month. Sales of duty-evading `seconds' boomed during this period.

Thus, there was an aberration of rising liquor consumption within the State without a corresponding increase in revenues for the Government. In fact, the sales of seconds were estimated on the basis of a ratio of 1: 3.5. This ratio implied that seconds sales were about 3.5 times more than regular sales, leading to huge revenue leakages.

The plugging of revenue leakages was done through concerted efforts in reducing duties (by nearly half) and by bringing in a new distribution system of IMFL in the State. Since July 2003, all sales of IMFL have been routed through the State-owned KSBCL, which, in turn, supplies stock to retail distributors.

Consequently, revenue collections through the State-owned monopoly was now averaging about Rs 110 crore a month, the sources indicated.

They said even the estimated eight per cent evasion could be eliminated, though it would throw back some ethical issues. This was because a further reduction in duties would bring down prices. The lower prices would, however, act as an incentive for higher consumption. The purpose of high taxes on liquor was to ensure that consumption itself was kept low, though a high tax structure spurred evasions.