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Decrease in VAT brings cheers to wine industry

Wineries have been facing severe losses due to the hike earlier this month.

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Making the the wine industry in Nashik happy, the cabinet meeting held on Wednesday reduced the Value Added Tax (VAT) from 25% to 20%. In addition, the state government will provide a rebate of 16% to the wineries and as such the tax on wine will effectively be 4%.

The additional VAT on wines imposed earlier this month had started to take its toll on the industry. The farmers complained that their grapes had not been picked up or their payments not cleared. And the wineries have been facing severe losses as they have accumulated stock of unsold wines due to the hike in VAT.

“Sales have reduced by more than half and we have so much unsold stock. Several wineries decided not to crush any grapes this season as they are facing a cash crunch or don’t have any space to store the wine,” said Pralhad Khadangale of Vinsura wines.
According to the industry experts, the situation arose due to the hype created for wine. Everyone, including ministers, the government, experts, wine connoisseurs, predicted a great future for wine. Contract farming of wine grapes and Indian wine making its mark in the international market only strengthened this belief.

Wineries started expanding their capacities. Looking at the industry’s potential, investors jumped into the fray and large investments were made. And with this, expectations increased. Wineries started to make contracts with grape farmers. A large expanse of land came under cultivation for wine grapes.

During this period, investors and some wineries showed surrogate inflated sales to raise the share market and the picture became more glamorous.

However, according to wine manufacturers, the government failed to support the industry in the manner it had claimed it would. Issues like simplification of licencing, reduction in VAT, single tax slab, etc, are still to be addressed.

In the real scenario, the sales of wine weren’t much at that time, neither are they now.
Due to large scale wine production, the markets were flooded and reached a saturation point whereas the sales remained as they were. Last year in November-December, the wine selling season, the sales were affected due to the terror attacks in Mumbai as it lost most of the foreign visitors, who are the biggest clientele for Indian wine. The collapse of the share market then was another factor that suddenly stopped the flow of investments. Several thousands of litres of wine were left unsold and wineries had no option but to stop crushing grapes this season.

Wine manufacturers claimed they approached the government several times to help them, but all in vain. Many small manufacturers have expanded to stay in the competition and have taken loans at an interest rate of 13%.

With sales on hold, they are facing the crunch. While the big wineries have been able to face the problem, many small ones have collapsed and have thus failed to honour the contract with the farmers.

“There has to be a national policy on wine with a single tax system in all states; the VAT needs to be reconsidered and the government should purchase at least 25% of the wine stocks. These are some measures that have been suggested that may give a lease of life to the wine industry,” said Shivaji Aher of Renaissance Winery.

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