Sin tax on aerated drinks stumps manufacturers

Manufacturers say clubbing soft drinks with tobacco products is unfair

The proposal to levy a 'sin' tax on soft-drinks by the Arvind Subramanian panel on the GST has caught manufacturers by surprise. They say clubbing soft drinks with items such as paan masala, tobacco and tobacco products is unfair.

"I am not sure whether grouping aerated drinks with cigarettes or paan masala is appropriate. The latter are addictive and have been proved to be harmful to consumers, which is why pictorial and written disclaimers are mentioned on packs. Carbonated drinks don't have any such disclaimers on them. I don't see the point of putting them in the same league as paan masala or tobacco and cigarettes," an executive with a top beverage maker said. He declined to be quoted because of the sensitive nature of the matter.

Spokespeople at Coca-Cola and PepsiCo were not immediately available for their comments. Arvind Varma, secretary-general of the Indian Beverage Association (IBA), a body of the country's top beverage makers, said he would like to study the recommendations carefully before making a comment.

But sources in the know say that if the panel's proposal to tax aerated drinks 40 per cent is considered, it will result in product prices shooting up by 10-15 per cent.

Central excise duty levied on soft-drinks is 18 per cent. If value-added tax and additional state levies are taken into account, the total taxat works out to 24-25 per cent, persons in the know said.

"Aerated drinks coming under the tax net are not new. In the 2014 budget, the Union finance minister had raised excise duty by five per cent on aerated drinks, giving an indication of his government's stand on the matter. The Arvind Subramanian panel's recommendations are the beginning. Once the GST Bill is cleared, we may see further changes," Saurabh Mukherjea, chief executive officer, institutional equities, Ambit Capital, said.

The Rs 15,000 crore carbonated beverage market in India has been growing in the single digits over the last few years due to cool summers as well as a gradual consumer shift to healthy beverages.

The country's largest beverage maker Coca-Cola had taken its first production cut in a decade in the June quarter this year. The move followed a decline in sales during the quarter, which is considered the strongest period for a beverage maker.

While Coca-Cola's volumes have recovered since, it has been largely on the back of sugar-free drinks such as Coke Zero. The latter has grown in the double digits in the last one year since launch and has helped the category of light sparkling beverages grow by close to 40 per cent, according to industry estimates.

Both Coca-Cola and PepsiCo have been looking at ways to improve their non-carbonated beverage portfolio to tap into prevailing consumer trends. Coca-Cola, for instance, is mulling stepping into the dairy space next year.