To end hooch, bring alcohol under GST


The Maharashtra government has ordered a probe into the hooch tragedy in Mumbai that has so far claimed 106 lives and rendered over 40 people ill. That is fine, but neither empathy nor compensation can bring back lost lives. The government needs to address the basic question as to why anyone, especially the poor, should have to drink illicit liquor. High levels of excise duty on liquor are to blame. Evasion turns into a lucrative activity when the duties are high and the chances of being caught (read, the cost of evasion) is far lower than the gain from evasion. Bootleggers grease the palms of law enforcers, excise personnel and local politicians.

The higher the excise duty, the larger the gain from evasion, the higher the incentive to dodge and the bribes to be paid. The latter are shared by the guardians of law and order. So, to kill the thriving illicit liquor industry, states must drastically lower excise duty. As the rollout of the goods and services tax (GST) is scheduled from April 2016, a better way would be to include liquor in the new regime that captures value addition across the production and income chains. GST creates audit trails that will help bring down tax evasion and end illicit trade. This will help hugely boost revenues. States, as some experts suggest, can hold on to the power to legislate on matters relating to liquor, and include a moderate, non-Vatted element of sin tax, given their fears over the revenue loss.

Prohibition also drives the alcohol sales underground, besides leading to unsafe hooch and corruption of the police. That’s the reason why it was withdrawn in the US in the early 20th century. Data in the past also showed that India’s states with prohibitive regulations against alcohol had a higher share of hooch fatalities.


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