Alcohol has been deeply embedded in human civilization and consumed for more than eight thousand years now. It plays a significant role in social bonding, religious rituals, and finds specific relevance in traditional medicine. Ancient Vedic texts in India celebrate alcohol (soma) for worship, pleasure, and medicinal use, while the Arthashastra regulated its production and sale, indicating early societal acceptance.
There arises a need for a balanced understanding of Alcohol’s benefits and drawbacks, promoting informed choices and moderation. Governments worldwide have implemented taxation policies to control alcohol consumption, with the World Health Organization (WHO) recognizing taxation as a “win-win” strategy—generating revenue while mitigating alcohol-related harms. This is also recognised as one of the most effective interventions by WHO’s global strategy to reduce the harmful use of alcohol, approved by member states in 2010 (“WHO Global Strategy 2010”). The 75th World Health Assembly (2022) Global Alcohol Action Plan, urges countries to tax alcohol to control affordability and fund harm reduction initiatives
This paper argues for taxation reforms in India, advocating for an alcohol content-based taxation model to promote responsible drinking, reduce public health risks, and align with global best practices.
Global Alcohol Taxation Strategies
Countries worldwide employ diverse alcohol tax structures, broadly classified as:
- Ad valorem taxes – Levied as a percentage of the beverage’s price.
- Volume-based specific taxes – A fixed tax per unit volume of beverage.
- Alcohol content-based specific taxes – Taxation based on alcohol by volume (ABV).
The WHO advocates for ABV-based taxation, by making high-alcohol beverages costlier and low-alcohol alternatives more affordable, this approach nudges consumers toward moderate drinking. This could, in fact, also create a fairer market by charging the consumer per milli-litre of alcohol while simultaneously promoting responsible alcohol consumption, thereby aligning with public health goals.
The Sheffield Alcohol Policy Model, which has influenced global alcohol policies also supports this model. A study conducted in England found that alcohol content-based taxation and minimum unit pricing were more effective when compared to imposing an ad valorem tax or increasing the current tax in terms of reducing alcohol-related health inequalities and reducing the mortality rate amongst heavy drinkers.
India’s Alcohol Taxation System and Its Shortcomings
Fragmented and Arbitrary Taxation Policies
India follows a federal structure where alcohol regulation falls under state jurisdiction and several States impose excise duties, VAT, and additional levies. The range of alcohol policies varies substantially across Indian states, encompassing everything from flat fees to percentages based on the manufacturing cost, the retail price, or a price set by the government.
Presently, there is no uniform imposition of excise duties by most states, with the demand for revenue by individual state governments acting as a driver force. The current taxation structure in India seems more favourable to hard liquor, so the cost per milli-litre of pure alcohol for spirits is much lower than that for beer or other products with lower ABV.
Since most states impose uniform duties on alcoholic beverages regardless of their ABV content, when these duties are calculated, it becomes apparent that beverages with lower alcohol content incur higher duties per milli-litre of alcohol. Consequently, the maximum retail price of a bottle of beer can match or surpass that of a 180 ml bottle of high-alcohol beverages like IMFL making the situation highly complex if one wishes to target reduction of pure alcohol consumption.
Health and Social Consequences
As per the WHO’s World Health Observatory, the annual average per capita consumption in the adult population in India for 2019, in terms of litres of pure alcohol, was 2.85 litres for spirits compared to a meagre 0.23 litres for beer.[12] A higher duty basis ABV content will ensure that heavy drinkers pay for costs relative to their consumption of ABV and consider a shift to low-alcoholic beverages.
The said policy has been implemented by various countries including Australia, Austria, Belgium, Canada, Denmark, Finland, United Kingdom, and South Africa,[13] and might prove to be a strategic approach to reducing the harmful use of alcohol in India. Some states, such as Rajasthan, West Bengal, Uttar Pradesh, and Madhya Pradesh, have recognised the importance of lowering tax rates on beer in recent years to encourage responsible consumption.
Alcohol Content-Based Taxation in India
Public Health & Fiscal Benefits
By directly targeting the core factor contributing to alcohol- related harm, consumers will start opting for lower-strength alternatives or reduce overall consumption and promote moderate drinking, leading to a decrease in alcohol- related health issues. This would also lead to an increase in greater health equity among the poorer sections of society. Beyond the public health benefits, Alcohol content-based taxation could lead to economic savings by reducing the healthcare costs associated with treating alcohol- related conditions and by mitigating the social impacts of excessive alcohol consumption.
Further, such a shift in consumption patterns towards lower alcoholic strength alternatives would incentivise market players to create new products and reformulate beverages,driving innovation in the industry towards high-quality and creative lower alcohol content beverages, such as beer.
Lastly, since “public health” is a state subject under Schedule VII, Entry 6 of the State List,the primary responsibility of providing healthcare services and maintaining public health also lies with the states. This revenue generated by states through the taxation of alcohol can be allocated towards public health initiatives and subsidising healthcare expenditures, thus significantly aiding states in improving health outcomes.
Conclusion
India stands at crossroads, with an opportunity to reform its beer and alcohol taxation policies to align with global best practices and WHO recommendations. As elaborated above, by adopting a taxation model based on alcohol content, India can meet public health objectives and foster a responsible drinking culture. This approach requires a careful balance of public health goals, tax efficiency, and equity to access and penetrate the market for low-alcoholic beverage manufacturers.
While the principle of taxing alcoholic beverages based on their alcohol content has merit and is supported by public health advocates, its effectiveness likely depends on several factors, including the elasticity of demand for alcoholic beverages, the availability of lower-alcohol alternatives, cultural and psychological attitudes towards drinking, enforcement of tax policies, and the overall framework of market freedom facilitated by a country.
By Shelly Kohli (Chief Legal and Compliance Officer, United Breweries Limited)
