Lower GST on molasses, relief on ENA may not lead to reduction in alcohol prices

The GST Council reducing rate for molasses may not bring any cheer for consumers as the alcohol industry believes the 23% savings are likely to be subsumed by states in the form of revised state taxes, said a senior official from an industry body on Monday, October 9. The GST Council on Saturday decided to exempt extra-neutral alcohol (ENA), a key ingredient used in manufacturing alcohol for human consumption, from the levy. The Council gave states the exclusive right to tax them.

According to the Confederation of Indian Alcoholic Beverage Companies (CIABC), the reduction of GST on molasses from 28% to 5%, has the potential to save Rs 400-500 crore per annum for the industry. Still, since states control the prices of alcohol in India, the benefit is unlikely to be passed on.

“The reality is that most of the ENA is used in alcoholic beverages, so very little goes to the pharma industry or cosmetic industry. The biggest impact will be on the Indian-made foreign liquor sector. The prices are not within the control of the companies so they may not be able to pass on any reduction in cost to the consumer,” Vinod Giri, Director General, CIABC told CNBC-TV18.

Elaborating on it further, Giri said, “In India mostly, 70% of states decide the price of the alcohol. And they are reluctant to cut it as their excise revenue collections are based on certain pricing and volume. So they are a bit reluctant to experiment with that, they are risk averse, so states normally don't allow any price reduction.”

The 52nd meeting of the GST council took place on Saturday in New Delhi wherein the body decided to exempt ENA from the levy when used for human consumption and left it for states to decide. Similarly, when ENA is supplied for industrial use, states will not levy any tax and it will be taxed at 18% under GST. Another crucial decision taken by the council was to reduce GST from 28% to 5% on Molasses.

Giri shared that just the reduction in molasses rates alone will likely save Rs 400-500 crore per annum for the industry.

“IMFL industry uses roughly about say 140 -150 crore litres of ENA every year. Nearly 65% of that, which is 100 crore litres, is actually traded. So someone produces and someone else is busy bottling it and making it into their products. Now a GST of 18%, if applicable, would have hit this Rs 100 crore litre of ENA. Looking at today’s price of about Rs 68-70 per litre, we are looking at ENA traded at Rs 6800-7000 crore and with an 18% levy, we are looking at around Rs 1,000 crore of GST burden every year on the industry."

Giri added, "However,  unlike any other industry where a manufacturer can pass on the GST to consumers, if applicable, in the case of alcohol, most states control its pricing. One-third of ENA used in the country is from molasses. And about 65% is being bought from other parties. We are looking at 65% of 50 crore litre, on that 23% of savings, would mean Rs 400-500cr in annual savings.”