Indian government is planning 40% tax on aerated drinks.
By Sreekanth A Nair
Coca-Cola India said that if the Indian government imposes 40% tax on aerated drinks, as proposed by the expert committee on Goods and Services Tax (GST), it will adversely affect the soft drink industry in the country and the company will have to consider shutting down some factories.
“An acceptance of the Arvind Subramanian committee recommendations with regard to GST rate of 40% on aerated beverages, will have a negative ripple effect on the entire beverage ecosystem, thereby affecting lakhs of retailers, thousands of distributors, transporters, cold drink equipment manufacturers, farmers and producers of raw materials for the beverage industry and the entire forward and backward supply chain systems,” a statement issued by the company said.
“It will lead to a sharp decline in consumer purchase, and for a demand driven industry, it will mean a significant rationalization of manufacturing capacity. In these circumstances, we will have no option but to consider shutting down certain factories,” it added.
The Indian government is planning to roll out GST next year and is expected to pass a bill in Parliament to this effect.
The government had appointed an expert panel headed by chief economic advisor Arvind Subramanian to study about Goods and Services Tax. The committee has advised a standard rate of 17-18% and 40% sin tax on certain goods including aerated drinks.
At present, a tax rate of 18% is being imposed on soft drinks.
Coca-Cola India has already invested $2.5 billion in India by setting up 57 factories, supporting 30 lakh retailers and 7,000 distributors and in creating direct and indirect employment for more than 200,000 people.
The company was preparing to invest another $5 billion in India by 2020. “For instance, we have opened three Greenfield sites over the last 20 months, 2 of which have been commercialized over the last 12 months,” it said.
Coca-Cola argues that the proposal is not in line with the Make in India program launched by Indian government, where foreign companies are encouraged to set up their production facilities in India.
The Make in India program has recognized food processing as an important sector within the program and specifically mentions the industry under the line item category of consumer food: packaged food, aerated soft drinks, packaged drinking water and also beverages: fruit-based and cereal-based.
The Hindustan Times quoted Venkatesh Kini, president, Coca-Cola India and South West Asia, saying, “We run 56 factories across India. If the proposal comes into effect, we will have to shut factories in India.”
“Any step in this direction will lead to several challenges for our business and do a lot of damage to us. Our 30 lakh retailers, thousands of distributors and bottlers… Because this is GST, it will have a ripple effect and hurt the entire ecosystem,” he added.