In Mumbai, a recent decision by the Maharashtra government has stirred the spirits, but not in a pleasant way for those who enjoy a drink at their favourite bars, lounges, clubs, discotheques, or cafes. The cost of the liquor served in these establishments is about to become a bit heavier on the pocket. The government has opted to increase the Value Added Tax (VAT) by a notable 5% for permit room liquor services, pushing the VAT rate to a total of 10%. This decision was conveyed through a Government Resolution (GR) issued on Friday. It has understandably raised concerns and discussions among both the hospitality industry and consumers alike.
Mumbai’s Liquor Prices Spike With 5% VAT Hike
Notably, this change will not affect liquor services within star hotels, as their VAT rate remains notably higher at 20%. According to the Times of India, the intention behind this increase in VAT is to bolster the state’s revenue collection. Yet, this shift in policy has raised eyebrows and garnered some apprehension within the hospitality sector.
Hoteliers have expressed their concerns, particularly in light of the recent increase in excise licence fees imposed by the government. The cumulative impact of these policy adjustments is projected to drive up liquor prices for consumers. It could potentially have far-reaching consequences. In an era where states are vying to attract more tourists and maximise revenue, this sudden policy shift may disrupt existing strategies and create challenges for the hospitality sector.
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Mumbai’s Hospitality Industry Reacts To The Increase
As per Times of India reports, Pradeep Shetty, the President of the Hotels and Restaurants Association of Western India (HRAWI), which boasts numerous high-end establishments among its members, expressed his surprise at this change. He emphasised that the move comes at a time when many states are reducing excise duties to boost tourism and economic growth, taking a more tourist-friendly approach. He pointed to states like Goa, Chandigarh, and Haryana as examples of this trend, which makes Maharashtra’s decision stand out.
Sukesh Shetty, President of the Association of Hotels and Restaurants (AHAR), an organisation representing over 15,000 premium hotels, bars, and restaurants across the Mumbai Metropolitan Region (MMR), echoed concerns about the VAT hike. He emphasised that the decision presents an unfair distinction between off-premise consumption at wine shops and on-premise consumption in restaurants. This discrepancy is expected to affect sales in the hospitality industry. It has a potential direct impact on employment, given that the restaurant industry typically employs significantly more people per outlet than the retail industry.
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Industry insiders have also predicted the potential consequences of this VAT increase. As liquor prices within bars and restaurants rise, customers may seek more affordable alternatives for consumption. Off-premise settings like building terraces, parks, beaches, parked vehicles, or street corners will certainly see a surge. This shift in consumption patterns could pose law-and-order challenges for the state administration.
This change in VAT rates has set in motion a debate between government revenue goals and its impact on hospitality industry.
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