Why Congress govt in Kerala is under pressure over lowering alcohol tax

The month-old Congress-led United Democratic Front (UDF) government in Kerala is facing criticism from within and from minority communities over its Budget proposal to reduce taxes on low-alcohol content beverages, reviving memories of the liquor policy controversies that plagued the previous UDF government and contributed to its defeat in 2016.

Presenting the revised Budget for the current financial year, Chief Minister V D Satheesan proposed reducing the sales tax on beverages with alcohol content between 0.5% and 10% by volume (v/v) from 251% to 120%. For products with alcohol content above 10% and up to 20% v/v, the tax has been lowered to 175%. At present, all Indian-made foreign liquor (IMFL) products in Kerala attract a uniform sales tax of 251%, irrespective of alcohol content.

Since low-alcohol beverages are not currently sold in Kerala because of the high tax burden, the move is seen as paving the way for their entry into the market.

Senior Congress leader V M Sudheeran has openly opposed the proposal and written to Satheesan seeking its withdrawal. Sudheeran, who had backed Satheesan during the chief ministerial race, argued that the proposal runs contrary to the UDF’s election promise of pursuing policies aimed at freeing Kerala from the menace of liquor and drugs.

“The Budget should not contain proposals that go against the UDF manifesto. The tax reduction is against its spirit and will encourage alcohol consumption. It should be withdrawn,” Sudheeran said in his letter.

AICC general secretary (organisation) K C Venugopal, who was also a contender for the chief minister’s post, expressed concern over the issue. “There are concerns about the liquor policy. It is a new government. If it involves policy matters, the party will discuss it and address the concerns,” he said on Monday.

The proposal has also triggered unease within the government. Excise Minister M Liju, considered close to Venugopal, reportedly objected to the fact that his department was not consulted before the Finance Department, headed by Satheesan, took the decision.

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Home Minister Ramesh Chennithala, who recently launched the anti-drug campaign “Operation Toofan: The Narco Hunt”, sought to downplay the controversy. “Our liquor policy is yet to be finalised. The Budget proposal relates only to taxation. There will be discussions before any final decision is taken,” he said.

The Indian Union Muslim League, a UDF ally, also spoke on the issue with its state president Sadiq Ali Shihab Thangal, in an article in party daily Chandrika, demanding that the concerns raised about the tax proposals be addressed.

Church weighs in

Religious organisations have also joined the criticism. Archbishop Joseph Pamplany said the Catholic Church could not accept the government’s decision, particularly when it was simultaneously pursuing an anti-drug campaign.

“Our temperance movement has already conveyed the Church’s concerns to the government. The proposal should be abandoned,” he said.

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The Orthodox Church, in a statement, urged the government to reconsider its position, saying the mandate was not to encourage alcohol consumption and that the fight against drugs should not be diluted.

Several Muslim organisations have also opposed the proposal, arguing that easier access to low-alcohol beverages could encourage drinking among young people.

It remains to be seen whether Satheesan will roll back the tax reduction in the face of mounting pressure from within the Congress and minority communities. Defending the proposal after presenting the Budget, the Chief Minister said the previous LDF government had already taken a policy decision to permit the sale of low-alcohol content beverages and that the present government had merely rationalised the tax structure.

However, Satheesan’s position has invited accusations of inconsistency. As Leader of the Opposition, he had criticised the LDF government’s move to reduce taxes on low-alcohol-content IMFL, alleging that it smacked of corruption and would result in substantial revenue loss for the state.

Opposition cashes in

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The CPI(M)-led Opposition has now seized on that contradiction. Former Excise Minister M B Rajesh asked the Chief Minister to explain the reasons behind the tax cut, remarking that he should reveal “how much he got” for lowering the levy.

If Satheesan ultimately withdraws the proposal, he could face another challenge — allegations that the government has yielded to pressure from minority communities and allowed religious organisations to influence public policy.

On Tuesday, former CM and Leader of the Opposition Pinarayi Vijayan raised the issue in the Assembly alleging that the rebate on tax was meant to help a firm from Karnataka. “The previous LDF government had not taken any decision on the demand of the Karnataka firm since 2023. However, the Congress government had hastily moved the related files to help the liquor manufacturer from Karnataka,” he said.

Comparison with 2016

The controversy has inevitably drawn comparisons with the liquor policy crisis that rocked the Oommen Chandy government in 2014. Faced with pressure from then KPCC president Sudheeran and influential Christian Church groups, the government delayed a decision on renewing licences for more than 300 bars attached to hotels.

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As the dispute escalated, Church leaders publicly warned the government against renewing licences for bars deemed substandard. Chandy eventually ordered the closure of all bars and announced a long-term plan to make Kerala liquor-free.

The decision, however, triggered allegations of bribery against then Finance Minister and Kerala Congress (M) leader K M Mani. The bar licence controversy and the subsequent liquor scandal continued to haunt the UDF government until its defeat in the 2016 Assembly elections.

However, the LDF government in 2016 abandoned the policy of liquor-free kerala and allowed all eligible applicants to own IMFL licences. Accordingly, the number of IMFL licences for hotels which were only 29 in 2016, had risen to around 850 when the LDF vacated office.