EU fumes over India's tax high

NEW DELHI: India���s spat with EU and over the ���high��� local taxes imposed by certain Indian states on imported liquor may turn ugly with the two sides finding it difficult to settle the issue through mutual consultations.

Even as the EU has threatened legal action against India at the WTO if the issue is not resolved by September, New Delhi claims that it can do little to convince the four ���accused��� states, one of which has elections scheduled in the next two months, to revoke or lower the taxes.

The EU claims that four states���Maharashtra, Tamil Nadu, Karnataka and Andhra Pradesh���impose higher local taxes on imported liquor compared to domestic liquor violating the WTO provision of ``national treatment������ which calls for imported goods being treated at par with local goods.

In the case of Tamil Nadu, where the state government sources the liquor and sells it to the public, the EU has an additional grouse that it does not source liquor imported from EU countries.

���We have had consultations with the state governments on the issues raised by the EU. However, we can do little in terms of making them either revoke or reduce the duties as it is a state subject,��� a commerce department official, who did not wish to be named, told ET.

EU officials, who visited New Delhi last month to hold discussions with the Centre and the state governments, had warned that if no action was taken by India by September, it would have to ask the WTO to establish a dispute settlement panel to settle the issue. In case, the panel holds India guilty of violating WTO rules, it will have to take corrective action failing which EU will be allowed to impose trade sanctions.

As per EU calculations, the four states represent together more than 50% of the Indian consumption for wines and spirits and are potentially a very significant market for EU wines and spirits. It claims that incidence of taxes on foreign liquor is as high as 200%-790% of the sale price, depending on the type of liquor and its price and also the state in which it is being sold.

The EU had earlier managed to convince India to bring its import duties on wine and spirits down to levels committed to at the WTO. It was, however, replaced by duties at the state level.