Hotels demand withdrawal of proposed VAT hike on liquor services in bars

MUMBAI: Hotel associations mainly comprising the Hotels and RestaurantsAssociation Western India (HRAWI) and the Association of Hotel and Restaurant Owners (AHAR), representing the hospitality industry in Maharashtra, have raised a strong objection to the proposed increase in Value Added Tax (VAT) on alcohol consumption in restaurants from November 1 and want it to be rolled back immediately.The decision, which would elevate VAT to 10%, from the earlier 5%, not only discriminated against the restaurant industry but also lacked consultation with industry stakeholders and consideration of its potential repercussions, they said.
With about 18,000 bars in hotels and restaurants of Maharashtra, they contribute to about 50% of beer sales of 33 crore litres, and 30% of the annual sale of Indian Made Foreign Liquor (IMFL) selling 8.5 crore litres of 28 crore litres. The delegations led by AHAR President Sukesh Shetty and HRAWI President Pradeep Shetty called on the excise ministry appraising them of the implications, the cascading effects across the value chain of the industry, and the resultant contributions to exchequer.
Ahar President Sukesh Shetty said, “This increase in VAT could have wide-ranging implications that includes: direct and indirect employment, impact on consumer spending; shift in consumer behaviour; black market and illicit sales; and impact on tourism and hospitality industry: for both the restaurant industry in particular, and society at large. With restaurants employing a significantly higher number of people compared to retail liquor vendors, reduced sales due to higher alcohol prices may lead to job losses in the industry. Elevated alcohol prices may drive patrons to seek liquor in alternative, potentially less regulated, and open environments, potentially affecting the law and order.”
HRAWI president Pradeep Shetty said “Tourism is a vital contributor to the country’s economy, accounting for approximately 9 percent of the GDP and employing over 12 percent of the workforce. The affordability of liquor is crucial in the tourism sector. Many States, including Goa, Haryana and Chandigarh, recognizing this fact, have reduced duties or levies on liquor to drive sales and boost tourism. The increase in VAT in our State is in stark contradiction to this, and will adversely affect both domestic and international tourism. Affordability is key for tourists, and this decision hampers the initiatives taken to attract visitors and eventually the economy.”
They said the higher alcohol prices in restaurants may deter customers from purchasing regulated alcoholic beverages, leading to reduced revenue for restaurants and putting the health of patrons at risk as they may be tempted to buy cheaper unregulated liquor. “With increased prices, customers may opt for other substitutes or choose to dine at home, diminishing the restaurant industry’s alcohol sales. A significant price gap between legal and illegal alcohol may incentivize smuggling and illicit trade, depriving the government of vital tax revenue. Higher VAT may make dining out less appealing for tourists, potentially harming the local tourism and hospitality sector and reducing revenues for businesses,” they added.
It is imperative that policymakers weigh these implications carefully when making decisions about alcohol taxation. Striking a balance between revenue generation, public health, and support for local businesses is essential for effective policy-making, they added. “We support revenue generation for the state, but we advocate for the abolition of VAT exclusively on alcohol consumption in restaurants, as done by Karnataka and Hyderabad. Simultaneously, a modest VAT increase at the manufacturing level would be a win-win solution for the state and the hospitality industry, significantly boosting state revenue without harming our sector,” they said cautioning that the proposed VAT hike could inadvertently empower illegal dhabas and bootleggers, while licensed establishments bear the brunt. “This situation may eventually lead to alcohol being sourced from neighboring union territories, causing long-term revenue losses for Maharashtra. The introduction of beer shop licenses by the state excise department has further exacerbated the disparity, as these license holders can sell sealed bottles at MRP and openly allow on-site consumption. This negatively affects alcohol sales in restaurants,” they added.

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