Aug 24, 2020
Indian Beverage Association (IBA) having Coca Cola India and Pepsi India as its prime members have written FM Nirmala Sitharaman asking to give GST relaxation on non-alcoholic carbonated drinks.
In due course, Sitharaman will evaluate if consumption of bottled non-alcoholic, carbonated beverages is a sin in India after lobbying by a group of companies for tax relief.
The IBA being controlling body of the non-alcoholic beverage industry, has written a note to FM Nirmala Sitharaman asking for tax relief for a segment that has been hit hard by the pandemic and lockdown.
To term the issue short, IBA has asked that if other food and beverages which contains sugar, can get a reduction in GST, why can’t carbonated soft drinks and colas get relaxation.
The copy of the note has been reviewed by Moneycontrol in which the IBA has demanded that colas and other aerated drinks should not be charged sin tax because it could adversely affect the 70,000 crore industry. The note also states that IBA companies has already suffered loss of more than 1,200 crore, plus loss on account of ingredients expiring due to limited shelf life. The sale has also been affected by diminished out-of-home consumption which contributes significantly to beverage sales.
The demands by IBA come ahead of the 41st & 42nd meetings of the GST Council, a political body that decides these tax rates. The council will meet soon.
The crux of the demand by IBA, which has Dabur India, Red Bull India, Coca-Cola India and Pepsico India Holdings, among others, as members, is remove aerated beverage from the sin category and provide tax parity. It also asked the Finance Ministry to remove the compensation cess, move juice-based drinks from the current GST slab of 12% to 5% and put packaged drinking water from the current GST category of 18% to 12%.
Carbonated beverages comply with all the terms & conditions of the FSSAI and ingredients used in these beverages are completely safe, explained the IBA note. “Hence, there is no reason to link these with other categories which have mandatory health advisory associated with their consumption.”
To buttress its case, IBA cited the “landmark judgment of October 22, 2013” by the Supreme Court which endorsed the finding by experts that ingredients present in the beverage do not appear to cause any health hazard.
Listening to its demands will give a boost to the local horticulture sector and improve the lives of farmers, according to IBA. “Our local industry has been badly impacted this year given that the peak months of March to June which contribute to over 50 percent of annual volumes, have been lost due to COVID-19 lockdowns. Preliminary assessments done by IBA for the full year of 2020 indicate that our Rs. 70,000-crore industry is estimated to contract by 34 percent,” said the note.
The IBA referred to examples of countries that provided relief to their local beverage industries after the sales channels such as hospitality, tourism, cinema, railways, airlines and large social gathering remain shut throughout the lockdown.
As of June 15, 2020, reduced VAT rates for soft drinks have been approved in Austria, Greece and Belgium to stimulate consumption and discussions to reduce VAT are on in Sweden and Denmark, said the note.
IBA pleaded that aerated beverages were placed in the highest GST slab of 28 percent thanks to the compensation cess of 12 percent. The high GST levy of 40% on aerated beverages is against the stated policy of the government to maintain parity between pre-GST and GST regimes, it said.
Aerated carbonated beverages are the only products in the entire food category that has been subjected to compensation cess. “We take this opportunity to elucidate very fundamental reasons as to why aerated drinks category should not be discriminated against and singled out,” said the note.
IBA argued in the note that aerated beverages are not a luxury product, consumed across all socio-economic classes. It cited an NCAER study that showed 91 percent sales of aerated beverages are made to the lower, middle and upper middle classes and serve as one of the cheapest sources of safe hydration and refreshment. “The bulk of such beverages are sold in the average price range of Rs. 10 to Rs. 30, which is within the reach of various economic strata of society,” added the note.