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Kerala government increases 20% tax on liquor, 8% on cigarettes

THIRUVANANTHAPURAM: Faced with a grim fund crunch arising from its new liquor policy, Kerala government on Wednesday steeply increased taxes on liquor, cigarettes, water charges and fees for various services to mop up over Rs 1,500 crore.

In a major post-budget exercise of Additional Resources Mobilisation of recent times, the Cabinet hiked tax on Indian Made Foreign Liquor (IMFL) by 20 per cent and imposed a five per cent cess for rehabilitation of workers who lost their jobs due to closure of bars. The measure is anticipated to net Rs 1,130 crore to the exchequer.

The tax on wine and beer would go from 50 per cent to 70 per cent, bringing an additional Rs 100 crore to the state kitty.

The tax on cigarettes and tobacco products has been raised by eight per cent from the existing 22 per cent to mop Rs 264 crore. Five per cent of the revenue accruing through this would be utilised to fund the free cancer treatment programme.

Briefing reporters on Cabinet decisions, Chief Minister Oommen Chandy justified the move to go in for major hike in taxes and service charges outside the budget, holding that there had been several such instances in the past.

He dismissed suggestions that the Congress-led UDF government’s decision to close down bars had pushed the state into a ‘serious financial crisis’, but admitted the state had been passing through a phase of ‘financial difficulty’, warranting some measures.

The state cabinet ministers will take a 20 per cent cut in salary till the end of this fiscal (March 1, 2015), the CM said. The foreign trips of the ministers will also be reduced comparatively, Oommen Chandy said.

“Contrary to news reports, there is not going to be any freeze on recruitments to government jobs. We do have financial constraints and to deal with that we have increased the taxes and mind you, this is not going to affect the ordinary man,” said Chandy to reporters after the weekly cabinet meeting.

“Liquor is not an essential commodity nor is it a fundamental right. Every time we get a request to increase the tax on tobacco products to 50 per cent but we have not done that because in neighbouring states it has a tax of 22 per cent. This time we have decided to increase to 30 per cent,” said Chandy.

About the hike in water charges, Chandy said the Kerala Water Authority today incurs a loss of Rs 12 per kilo litre of water that is supplied to consumers.

“We have not hiked the charges for those in the below poverty line category and also for up to monthly use of 10 kilolitres in the above poverty line category consumers. For those who use above 10 kilolitres of water every month, there will be an increase of 50 per cent in water charges. Through this increase, we expect to get additional revenue of Rs 205 crore,” said Chandy.

He, however, added that there will be no increase in fees charged in the education sector but there will be an increase in land registration and stamp duty charges. He said a high level committee has been formed to initiate steps to raise funds from financial markets.

Land taxes, duties and fees for various kinds of property transactions would also go up with the lifting of the ceiling of Rs 1,000 on them, which would boost revenue by Rs 78 crore. The fee for availing services from government would also be increased with the education sector being exempted from this. This measure is expected to bring in about Rs 300 crore.

Water charges would go up by 50 to 60 per cent, depending upon the slab of consumption. Levy on water charges will increase by Rs 2 for those who use more than 10,000 litres of water. At present, kilo litre of water costs Rs 4 which will be increased to Rs 6. The demand was to increase the tariff to Rs 8.

The proposal would bring in Rs 205 crore to the Kerala Water Authority, which has been incurring a heavy loss due to revenue gap. The government's decision to close down 732 liquor bars and phase out retail outlets is anticipated to result in a revenue loss of Rs 1,800 crore to the exchequer.

For the first time since the present government assumed office in 2011, the state went into overdraft and borrowed Rs 100 crore early this month to tide over the financial crisis.

The state Cabinet on Wednesday reviewed the report of additional chief secretary KM Abraham suggesting ways to tide over the financial crisis the government is facing. The report has been submitted to the Chief Secretary.

Home Minister Ramesh Chennithala said that the government had to take some difficult decisions to deal with the crisis. The Finance Department had invited suggestions from all departments to cut expenditure and increase revenue.

Reacting to the hike in tax, state CPM secretary Pinarayi Vijayan told reporters that the tax hike is a blow on the people. “We will not allow this to happen and we will organise protests by organising the people against this anti-people policy of the Chandy government,” said Vijayan.