EU calls time on India's high spirit tax

By Chris Mercer

- Last updated on GMT

Related tags India European commission International trade

EU officials are set to report India to the World Trade
Organisation at the end of this week (17th) in a bid get high
import tariffs on wine and spirit drinks dropped, and force open a
lucrative emerging market for European producers.

India has until the end of Friday to show it is willing to reduce the tariffs, which the European Commission says are a "blatant violation" of World Trade Organisation (WTO) rules.

Privately, officials and industry believe the case is extremely likely to move to the first stage of a WTO dispute, a 60-day consultation period that will see both sides attempting to strike a deal at WTO offices in Geneva.

The move could see India forced to cut its tariffs on wine and spirit imports, improving European drinks firms' access to what they view as an important emerging market.

"Alongside China, India has the potential to become the world's largest wine consumer, even beating the US, within the next 10 years,"​ a European Commission spokesperson told​.

Spirits firms also hope to get in on the action. "India is a key emerging market for Scotch Whisky,"​ said David Williamson of the Scotch Whisky Association (SWA), which originally raised the tariff issue with the Commission.

Exports of Scotch Whisky to India have been growing in high double figures even with the tariff barriers, but only made up one per cent of the country's 100m-case whisky market in 2005.

India's basic customs tariff on spirits is 150 per cent, compared to around 10 and 20 per cent in other key emerging markets, China and Brazil, respectively.

It is India's additional tax, which puts an extra 25 to 150 per cent on selected imported spirits, at the heart of its dispute with the EU, however. Theoretically this additional tax on imports balances the market by compensating for local duty tax levied on domestic producers in India's different states.

But European drinks producers have complained the additional import tax is far higher, and that they sometimes have to pay local taxes as well.

European Commission officials threatened to report India to the WTO in July, after an in-depth investigation found "serious concerns"​ about unfair and discriminatory tax on wine and spirit imports to India.

The issue will go before a WTO Dispute Settlement Panel if no agreement is reached either before or during the 60-day consultation period. WTO rules lay down a 15-month framework for dealing with dispute settlements.

It is understood debate in the Indian government on whether to reduce tariffs has hinged on treasury concerns over potential lost revenue.

High import tariffs have only pushed more Indian consumers into the illegal grey market where spirits are cheaper, increasing government losses and damaging consumer choice, according to the SWA's Williamson.

"Removing the fiscal incentive for consumers to turn to the grey market and bringing more sales through official channels could get the government higher revenue."

The SWA claimed earlier this year that only half of India's 55m-case domestic whisky production was sold legally.

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