Karnataka excessively dependent on alcohol for state revenues

Even as banning alcohol is unlikely to affect finances of states nationally, as share of alcohol in their revenues is minimal, it is not the case with Karnataka, according to a detailed study of state budgets for 2017-18 by Motilal Oswal, a securities firm.

The study has revealed that Karnataka depends disproportionately on the revenues from alcohol for the state revenue. The share of tax slated to be collected from alcohol in Karnataka for the fiscal year (FY) 2017-18 stood at whopping 12.3% of the total receipts by the state, the report said. “Not only has Karnataka collected more than one-fifth of the total alcohol taxes collected by 17 states, but alcohol accounts for more than 12% of total receipts by the state,” the report said.

In contrast, while Maharashtra that collects 17% of total alcohol taxes nationally, yet alcohol will account for only 5.6% of its total receipts, the report added. After Karnataka, Haryana (7.3% of the revenue) and Telangana (7.2%) are other highly dependent states on alcohol.

Karnataka’s total receipts for 2017-18 are estimated at Rs 1,82,119 crore. The budget estimates envisaged revenue receipts of Rs 1,44,892 crore and capital receipts of Rs 37,227 crore, including borrowings of Rs 37,092 crore. The state’s own tax revenue for 2017-18, which includes revenues from alcohol, was pegged at Rs 89,957 crore, which is an increase of 9.42% over the revised estimate of 2016-17.

“One of the reason for the increased revenue from liqour is the ban in the neighbouring state (Kerala and Tamil Nadu). There is a lot of purchase and transportation of alcohol is taking place from Karnataka,” Govinda Rao, Member, 14th Finance Commission told DH.

On April 10, 2017, Madhya Pradesh became the fourth Indian state (after Kerala, Bihar and Tamil Nadu) in past two years to announce a ban on liquor. In December 2016, the Supreme Court ruled that stores selling alcoholic beverages within 500 metres from highways will be closed from April 1, 2017.

On an aggregate basis, the report stated, that 17 states have budgeted to collect Rs 83,300 crore from alcohol in FY 2017-18, up 14%, against 10% growth over the past three years. The share of alcohol taxes in total receipts has fallen consistently from a peak of 6.3% in FY 2012-13, to 4.2% in FY 2016-17 in these states, and is budgeted to remain so in FY 2017-18 also, the Motilal Oswal report said.