| DIAGEO,
the world's largest spirits business, having also a
presence in the wine market has hired KPMG consultants
to fight the Indian government in a continuing row over
its unfair and punitive tax regime, reports Scotland
on Sunday.
A team from KPMG's Australia office is expected to
fly to India this week to begin work on a detailed case
against the taxes.
The appointment will be backed by a letter of complaint
from the Scotch Whisky Association and Discus, the US
spirits trade body.
The move comes after it has emerged that states are
now free to introduce their own taxes on imported wines
and spirits, despite a ruling by the WTO and a decision
by the Indian government to remove ACD. Maharashtra,
which has the biggest market for wine and spirits, has
imposed an additional excise duty of 200% on whisky
and 150% on wines.
The excise department of Maharashtra says its decision
is compliant because local producers already pay these
taxes. So, theoretically, the adjustment simply brings
importers into line. However, the local wine manufacturers
are exempt from excise duty, at least till 2011, according
to the 10-year policy effective from 2001.
Besides, the local liquor producers, as also the wine
producers from out of state are taxed on the raw cost
of manufacturing a bottle whereas the imported products
suffer the duty on the assessable value which is CIF+1%.
The biggest disappointment is for the fine wines which
were paying a duty of Rs. 200 a litre and now will have
to pay 150% instead. Hotels in Maharashtra may be the
biggest sufferers as they were not paying any customs
duties earlier and the change in the customs duty structure-
the duty has been hiked from 100 to 150%, has not affected
them while the additional burden of excise is now going
to make the costs go up significantly.
A bottle of Chateau Latour that costed the Mumbai
hotels Rs. 21,700 ($ 520) including the excise duty
of Rs. 150 a bottle will now go up to Rs.60 ,150 ($
1500) with the combined burden of 150% customs duty
(earlier 100%) and the now imposed excise duty of 150%,
according to the importer, Sanjay Menon.
This week the International Wine and Spirits Association
of India will lodge a letter of protest against the
tax with the excise department of Maharashtra, Mumbai's
state government.
The Scotch Whisky Association, Discus and European and
Australian producers were busy this weekend finalising
the draft of the letter.
The Australian government is also expected to come
out in overt criticism of the tax this week.
So far no importer has applied for the excise permits
required to move their products after paying the excise
duty, indicating that the policy may be under review.
But a senior civil servant at the Maharashtra Excise
Commission denied that the tax was being reconsidered.
Like the United States, the alcohol business in India
is not just a federal situation. If anything, there
is far more regulation at the local state level than
there is at the federal level. This is the main difference
between India and China which has a centralised government
that gets things done, says an international drink analyst.
Under the Indian Constitution, States are expected
to discourage the use of alcohol and under Section 47
are free to set their own liquor policy and tax structure.
Maharashtra also has more than 90% of Indian wine producers
and is under a lot of pressure to protect their interests.
So far, Delhi and Bangalore - India's other two largest
wine and spirits markets, have not followed Mumbai's
lead, as the industry had feared. While work is carrying
on as usual in Bangalore, Delhi has announced its basically
-, unchanged policy on Monday.
A spokeswoman for Diageo declined to comment.
In the meanwhile, Paul Walsh , CEO of Diageo, has acknowledged
that Vijay Mallya's £595 million acquisition of
Glasgow-based distiller Whyte & Mackay (W&M)
recently was encouraging news for the industry generally.
'There is an emergence of a super-league in wines and
spirits and beer. A few companies are leading the march
on consolidation. We have been first-mover and with
that come certain advantages.'
He said he was heartened by the potential for further
cuts in Indian duty, still high compared with 10 per
cent in China and 20 per cent in Brazil, following the
swoop by Mallya on W&M.
Walsh said he believed the acquisition of W&M by
Mallya's United Breweries group showed that the Indian
businessman believed his country's duties on Scotch
would fall farther.
"That's a sign that tariff levels will liberalise
more in India. Mallya sees that and wants a piece of
that market. I saw that as very encouraging. Mr Mallya
is a very astute businessman,' said Walsh
Source: http://business.scotsman.com
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