High tax rate under GST to affect beverage industry: IBA

Aamir H Kaki 

With the re-categorisation of aerated drinks, slotting it as 'demerit' in the GST (Goods and Services Tax) rate slabs, the Indian Beverage Association (IBA) has expressed dissatisfaction and said that increased tax rates will adversely affect the industry.

“If the tax rate is increased steeply, it will adversely affect the industry. But I think we need to push our side of the story some more. We don’t know how or what will be the outcome of the exercise we have undertaken until it is completed,” Arvind Varma, Secretary General, IBA, told The Dollar Business.

In its meeting last week, the GST Council had stated that luxury goods, such as high-end cars and demerit items that include pan masala, tobacco and aerated drinks, will come under the highest tax rate of 28% and also attract a cess in a manner that the overall incidence of tax continues to be at the present level.

On the question about the steps IBA is taking on the issue, Varma said, “We have met several state governments and lot of functionaries in the central government. And we have sent out a press note on the GST tax rate, concerning the industry. Those are the steps we are taking and hoping that the government will understand our side of the story.” 

When asked about the investor’s sentiments and impact on FDI, he said, “If the tax rate is inordinately high it will definitely be a disincentive for the investment. And even those who are in the business now would suffer from disadvantage.”

Earlier in its press release IBA reiterated that "Aerated drinks are not 'luxury' goods. Aerated drinks cater to the average hydration needs of Indians in the form of immediately-available hygienic and safe drink source. Such drinks, that are available at Rs.10 for 200 ml, neither are luxury goods nor do they pose any hazards on health.”

When the tax rates applicable on aerated drinks with abatement stands already at 30-31%, the IBA does not subscribe to the proposal of an extra cess over and beyond the 28% GST rate on aerated drinks.

The association, which comprises members from major cola and beverages companies including PepsiCo India, Coca-Cola India and Red Bull India, said that the aerated drinks do not come under the 'sin' goods category as the Government of India itself had acknowledged the position by taking out such items from Schedule VII of Finance Act, 2005 in the Union Budget of 2015-16.

On the issues of health related to such drinks, the association said that the court has also observed, based on the report by an expert panel that the ingredients in the aerated drinks do not have any health hazards.