Goods and services tax tweak brings relief to soft drink manufacturers

A differential tax under the new goods and services (GST) regime for various beverages has come as a boon for some soft drink players, which are reeling from heavy taxes on aerated or carbonated drinks.
 
Coca-Cola India, which last November launched Thums Up Charged, the first variant of its iconic brand, after the government announced the GST rates, falls in the 18 per cent GST slab.
 
But its mother brand “Thums Up” and other cola drinks pay a stiff 40 per cent. The reason: Under the new GST rules, beverages that have a high level of caffeine have to pay 18 per cent. But sweetened aerated water, which includes Thums Up, Coke, Pepsi, Sprite, and 7Up, to name a few, has to pay 40 per cent, which includes 28 per cent tax and 12 per cent additional cess.
 
Thums Up is the largest cola brand in the country, much bigger than either Coke or Pepsi. But it is classified as sweetened aerated water.  Thums Up Charged has declared it has a caffeine level of 62 mg per 400 ml, which is much more than what is permissible in a normal aerated drink and is, therefore, categorised as a “caffeine beverage” because under government regulation, non-alcoholic beverages with a caffeine content of more than 145 mg per litre are to be labelled “caffeinated beverage”, which cannot have more than 300 mg. The category also includes sports drinks such as Red Bull.
 
So are companies using the differential in duty to tweak their products and reduce the huge tax burden? A Coke spokesperson, responding to a query, said: “Product conceptualisation and development are a process that takes time. We had embarked upon this journey to innovate a variant of Thums Up, making its 40th year, much before the GST was announced.”
 
The Coke spokesperson said: “We are committed to providing choices to consumers. Thums Up Charged is the result of Coca-Cola’s steadfast commitment to innovation by offering more beverage choices to its consumers.”
 
Industry experts say Thums Up is a Rs 45-50 billion brand. The GST differential provided by the government, they say, has given the companies an opportunity to improve their margins by tweaking the contents of some of their products. Coca-Cola, for instance, has kept the price of the new product at the same level as that of Thums Up.

However, they say a lot will depend on the customer response and whether Thums Up Charged, which is going through a pan-Indian launch, is able to become a substantial volume provider for the company.
 
Beverage experts say it is not possible to increase the level of caffeine on all carbonated drinks because this would make them bitter. 
 
The industry has been upset at the stiff duty, which is much higher than the excise duty they were paying earlier. It varied from state to state but was between 28 per cent and 42 per cent.  Many cola companies have had no choice but to raise the prices of some of their products, though they have also absorbed part of the increase in many cases.
 
Soft drink players have petitioned the government on reducing the GST on aerated drinks, which also have juice, from the present 40 per cent.
 
In discussions with the government, they have said the industry, which has accepted the call of Prime Minister Narendra Modi to add juice to such drinks, would like to increase the level to more than 10 per cent.