The Centre has decided to postpone the Budget provision of the implementation of the scheme of tax collection at source for Indian-made foreign liquor till September 1, 2003.

This will put into abeyance the government's plan to impose a 10 per cent income tax on sale of liquor by manufacturers to the dealers, which was to come into effect from June 1, 2003, under Section 206C of the Income-Tax Act, 1961. However, scrap dealers and others will have to pay the tax as usual.

The finance ministry's decision has given a reprieve to the Indian-made foreign liquor industry with a Rs 28,000 crore (Rs 280 billion) turnover.

Senior government officials said they would also consider lowering the tax rate to 1 per cent for wholesalers and 3 per cent for retailers through an amendment to the Finance Act, 2003, in the monsoon session of Parliament.

Since 1988, Section 206C was applicable only for country liquor and forest products, till Finance Minister Jaswant Singh amended the provision, while moving amendments to the Finance Act in the last Budget session.

A finance ministry release said the decision followed representations from various quarters, including state governments of all the southern states, who felt that the 10 per cent tax rate was too high, as it presumed a rate of profit of 30 per cent.

They also represented against the hassle that the manufacturers would face in collecting the tax from the hundreds of dealers at the point of sale.

The release said the ministry felt that it was necessary to look into all these representations before the scheme was made applicable to dealers in the Indian-made foreign liquor industry.

Under the scheme, any seller, be it the government, a corporation, a manufacturer, a distributor or a wholesaler, is required to collect tax from the buyer at the rate of 10 per cent of the amount payable by the buyer at the time of sale of goods and deposit the amount to the  Centre.

While a 10 per cent income tax will have yielded a revenue of Rs 2,800 crore (Rs 28 billion) for the government annually, the proposal to reduce it to 1 per cent and 3 per cent will reduce the kitty drastically to around Rs 300 crore (Rs 3 billion).

The finance ministry was under severe pressure to restore the provision to the pre-Budget provision, especially from the domestic liquor lobby. The lobby had also claimed that under the provision, they would have to chase the retailers even abroad or pay the tax from their own resources.