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Tax blow to tipplers
August, 14th 2008

The next time you visit your favourite watering hole for a drink, be prepared to gulp down a possible price hike, too.

The government has claimed a 20 per cent share of the profit on every peg sold by bars, restaurants and star hotels, but its the customer who could end up paying more.

The idea is to spare the poor and tax the rich. Thats why we have decided that bars, hotels, three and five-star hotels doing brisk business in foreign liquor should cough up more money in the form of sales tax. There shouldnt be any opposition to the move as the outlets are making huge profits, finance minister Asim Dasgupta said, tabling a sales tax amendment bill in the Assembly on Wednesday.

Till now, the government had taxed only manufacturers of India Made Foreign Liquor and importers of foreign brands at the rate of 20 per cent. Bars, restaurants and star hotels had all along been making profits that remained untaxed. They will now have to pay sales tax on profits, Dasgupta said.

What it means is that an establishment buying a peg of liquor at Rs 20 and selling it at Rs 80 will have to pay Rs 12, or 20 per cent of the price difference, to the government.

The finance minister said the additional sales tax would fetch Rs 50 crore annually. Everybody is aware that bars and hotels sell foreign liquor at a price that is at least four times more than the buying rate. So its only fair that they should contribute more to the state coffers in the form of a tax on profits.

Managers of star hotels in the city declined to say whether they would pass on the tax burden to the consumer. But a senior official of the finance department said upmarket bars and restaurants were likely to do so because they knew that their affluent clientele wouldnt mind paying a few rupees more for a drink.

Look at the status of people visiting these bars and star hotels. Would it matter to them if these establishments hiked the price of a peg of liquor by Rs 10-15? Whet we are concerned about is our revenue. We need more funds, which is what prompted us to introduce a sales tax on the profit of pubs, bars and restaurants, the official said.

Delhi had last year scrapped the additional customs duty of up to 150 per cent over and above the normal levy on wines and spirits, amounting to a concession of 25 per cent on imported liquor.

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