Topics Covered: Separation of powers between various organs dispute redressal mechanisms and institutions.
Sources of revenue for the states
What to study?
For Prelims: Sources of revenue for states, revenue of excise duties.
For Mains: Significance of these revenues and ways to enhance these sources.
Context: After incurring high losses due to the pandemic, states such as Delhi and Andhra Pradesh are levying 70-75% additional fee on liquor purchases.
Manufacture and sale of liquor are major sources of revenue for states. A ban on alcohol sales was a crucial part of the lockdown, but it deprived states of critical revenue.
How is excise duty levied and collected?
Excise duty is an indirect tax levied by the government on goods manufactured within India, and compares with custom duty, which is levied on imported items.
Excise duty refers to the tax amount included in the final selling price of an item.
As excise duty is a tax on the manufacture of goods, the goods do not have to be sold for the excise duty to be collected.
Who levies the excise duty on liquor?
The excise duty on liquor is levied by the respective state governments in India.
State excise duty on alcohol is the second or third largest contributor to the own tax revenue of states.
It accounts for 10-15% of the tax receipts for a majority of the states.
Licences to sell alcohol, fines and confiscation of alcoholic products also add to the exchequer of states.
Does alcohol not come within the purview of GST?
Alcohol is not within the purview of the goods and services tax (GST). Exempting alcohol from GST was a key request put forth by state governments when the tax reform was being implemented across the country.
Other major items that are beyond the ambit of GST are land, electricity and petroleum products such as petrol, diesel and aviation turbine fuel.
What is their income from excise on liquor?
The 29 states and Union territories collected a total of ₹1.76 trillion through excise duty on liquor in 2019-20. This is 16.5% higher than the collection in 2018-19.
The average monthly collection in 2019-20 was ₹15,000 crore, says the Reserve Bank of India; the pre-coronavirus projection for 2020-21 was even higher.
What are the other sources of revenue for the states?
The states’ revenues comprise broadly two categories — Tax Revenue and Non-Tax Revenue.
- Tax revenue:
It is divided into two further categories: State’s Own Tax Revenue, and Share in Central Taxes.
Again, Own Tax Revenue comprises three principal sources:
- Taxes on Income (taxes on professions, trades, callings and employment).
- Taxes on Property and Capital Transactions (land revenue, stamps and registration fees, urban immovable property tax).
- Taxes on Commodities and Services (sales tax, state sales tax/VAT, central sales tax, surcharge on sales tax, receipts of turnover tax, other receipts, state excise).
- Non tax revenues:
Collected by the governments for providing/facilitating any goods and service.
- Sources of revenues for states.
- Constitutional provisions for sharing of revenues.
- Article 280.
- Difference between tax and non tax revenues.
- What is excise duty?
Sources: Indian Express.