Under pressure from US and EU, which have dragged it to the WTO over high duties on wines and spirits, India has decided to scrap Additional Customs Duty of up to 150 per cent on these products to make the tax structure compatible with its international commitments.
"We are planning to scrap ACD by July and allow states to impose taxes equivalent to the levy on domestic wine and spirit makers," a senior Commerce Ministry official said.
He said this would be done through an executive order and there was no need to bring a central legislation for allowing states to levy additional taxes.
The taxes the states would impose over and above the basic customs duty would be WTO compatible, as the state level taxes will be equal to the burden imposed on domestic industry. The removal of ACD would result in foreign liquor costing much less.
Officials said collections from ACD are only Rs 60 crore a year and its removal would not hurt much. In fact, the reduction
in prices at the consumer level would push up imports resulting in higher revenue through customs.
India is charged with imposing duties of up to 550 per cent on imported wines and spirits, whereas it is allowed to go up to a maximum of 150 per cent under its WTO obligations.
The WTO has already set up a dispute settlement body on complaints from the EU and the US. It may take a few months before the ruling comes before which India is likely to fall in line with its multilateral obligations.