Drop carbonated drinks from sin goods category: beverage industry to govt

Amid the impending rejig in the goods and services tax (GST) rates, an association representing the country’s beverages industry has appealed to the Centre to not classify aerated beverages as sin/demerit good and bring it under the 18 per cent slab while citing their “mass consumption” as a reason.

 

In its plea, the Indian Beverage Association (IBA) said that independent analysis by Tax India Online shows that the sector’s high price elasticity means GST rate rationalisation will drive volume growth and formalise demand.

 

“Such taxation disproportionately burdens low-income consumers and ignores fruit-based and low and no-sugar variants, which offer healthier alternatives. Hence, a sugar-based-taxation approach which is in-line with globally accepted models, should be considered,” the association said in its plea to the government.

 

Currently, aerated beverages are classified as sin/demerit goods, leading to 40 per cent taxation (28 per cent GST and an additional 12 per cent compensation cess).

 

Referring to the impact of the GST rationalisation, the association said, “While an initial fiscal impact of ₹277 crore may occur by 2025, from 2026 onwards, net revenue surplus of ₹ 32 crore - ₹591 crore annually is projected due to increased compliance and consumption. Rationalisation is fiscally neutral in the short term and revenue positive in the medium term.”

 

The association claimed that the current taxation equates them unfairly with tobacco and pan masala, despite no comparable public health concerns. 

 

It also demanded that fruit based juices -- currently taxed at 12 per cent -- should be categorised in the 5 per cent tax slab.

 

IBA has also said that carbonated beverages are highly price-sensitive, with almost 71 per cent of transactions are at the price points of ₹20 or less, and 65 per cent of consumers belong to the lower socio-economic classes.

 

“With demand exhibiting high price elasticity, rationalising GST would help sustain affordability for mass-market consumers. A price elasticity of demand of 1.6 means that a 1 per cent increase in price leads to a 1.6 per cent decline in quantity demanded, indicating elastic demand, meaning consumers are highly reactive to price changes,” it said.

 

Prime Minister Narendra Modi announced GST reforms as a Diwali gift to lower the tax burden on the common man during his Independence Day speech.

 

According to news reports, the 12 per cent GST rate is expected to go and the items are expected to fall under the 5 per cent slab.

 

The association also said that the beverage industry is one of the largest procurers of agricultural commodities, annually purchasing 20 lakh metric tonnes of sugar and 12 lakh metric tonnes of mango from Indian farmers which helps fortify the local agrarian supply chain and enhances farmer incomes.

 

“As India’s horticulture production has surpassed its food grain production, it is crucial that the GST structure is rationalised. The industry provides the highest, that is 19-24 per cent retailer margins, along with product discounts. Therefore, reducing taxes will allow the industry to pass these benefits to retailers and distributors,” IBA further added. 

Looking to regain fizz 

• Firms claim sector's high price elasticity means rate rationalisation will drive volume growth
• They argued that current taxation equates them unfairly with tobacco and pan masala
• Industry has sought 5% levy on  fruit-based juices