No Restrictions On Duty Free Liquor And Cigarettes

Ambrosia|January 2020

No Restrictions On Duty Free Liquor And Cigarettes
Restrictions on Duty Free Sales would have lead to increase in passenger charges, hurt airport industry and may have encouraged smuggling.

Recent media articles have reported that the Ministry of Commerce & Industry has recommended a reduction in per passenger allowance of import of liquor at arrival Duty Free stores at all Indian airports, along with a complete ban on sale of cigarettes through Duty Free stores. Such a move will have disastrous effects on the Indian Aviation Industry across all stakeholders including airports, airlines, passengers and Duty-Free operators.

APAO has vehemently opposed the proposed move to reduce liquor allowance from 2 litres to 1 litre and to do away with import of cigarettes presently one carton of 100 sticks.

As per APAO, it will harm the entire aviation ecosystem comprising of airports, airlines, duty free operators and AAI and does not help in any way in improvement in balance of payments. Share of import of liquor for sale to arrival passengers in total import is miniscule i.e. 0.0213%. Even doing away with entire imports will not serve any purpose. The same ministry is recommending reduction in import duty on gold to mitigate illegal import. With the same logic the proposal will enhance smuggling of imported liquor and encourage passengers to buy more at departure airports globally, resulting in higher foreign exchange outflow.

Another argument given by the APAO is that liquor import is within the overall limit of Rs. 50,000 available to passengers and hence any reduction in liquor quota will result in shift to import of other items thereby making the entire exercise to improve balance of payments ineffective.

APAO elaborated that present limit of ₹50,000 was ₹25,000 in the year 2004. Considering rupee depreciation vis-à-vis USD, of 162% during the said period, in real terms limit is reduced by 23% which will further reduce considering USD inflation.

Typically, passenger charges alone are never sufficient to cover the cost of developing and operating airports and it is non-aeronautical revenue streams such as Duty Free which subsidise these costs. In the present regime of hybrid or shared till mechanism adopted by AERA as per NCAP 2016 increase in non-aeronautical revenue leads to lower aeronautical tariff, thereby passing the benefit to the passengers. At most Indian airports, Duty Free revenues make up 15-20% of the total non-aero revenues and sales of liquor and cigarettes together account for over 75-80% of overall Duty Free sales and to make up the revenue loss on account of these new restrictions, the aeronautical charges will have to increase which will have to be borne by airlines and passengers. It is estimated that the aero charges will go up by at least around ₹200 crore annually across India which will have an impact on ticket prices and may even impact the growth in passenger traffic which is already extremely subdued.

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January 2020