NEW DELHI: The Indian Beverage Association (IBA), which represents the country’s biggest soft drinks makers including Coca-Cola, PepsiCo, Parle Agro and Red Bull, has written to the GST Council and Finance Minister Nirmala Sitharaman, asking to be removed from the ‘sin tax’ category, ahead of the GST Council Meet on August 27. ET has seen a copy of the letter which says the Rs 70,000-crore non-alcoholic beverages sector which includes soft drinks, packaged drinking water and juices, is expected to contract by 34% in 2020 compared to last year, and has already suffered a loss of Rs 1,200 crore on account of products and ingredients expiring due to limited shelf life.
Aerated drinks are placed in the GST slab of 28% and levied a compensation cess of 12%. “Aerated beverages were placed in the highest GST levy of 40% ; it is the only product category within foods that has to pay the compensation cess,” the letter says.
Terming the tax slab as ‘discriminatory treatment’, the IBA drew a comparison with other sugar-based products such as ice-cream and chocolate and said these are taxed lower than fizzy drinks.
It said aerated beverages are neither a luxury nor a sin product, adding that a bulk of beverages are sold at Rs 10-30.
The letter, signed by IBA secretary general Arvind Varma, asked for revision of levies for juice-based drinks from the current GST slab of 12% to 5%, and reduction of tax on packaged drinking water from the existing GST slab of 18% to 12%.
The IBA said the peak months of March to June which contribute to over 50% of the sector’s annual volumes have been lost due to Covid 19 lockdowns and predicted that the industry is expected to suffer in the near future as well because of diminished out-of-home consumption which contributes significantly to beverage sales.
In media interactions and investor calls earlier this month, officials from both Coca-Cola and PepsiCo said while in-home consumption has been picking up since June, localised lockdowns have made demand in the larger out-of-home channels uncertain.
On average, three-fourths of soft drinks sales come from out-of-home channels such as restaurants, hotels, cinema theatres, malls and live events. The Atlanta-based Coca-Cola had said unit case sales volumes in the Asia Pacific region fell 18% in the April-June quarter primarily due to the strict lockdown in India.
PepsiCo India’s sales for both beverages and snacks fell by double-digit in the 12-week period ended June 13, an earnings statement by the New York based beverages and snacks maker had said last month. It said in Africa, Middle East and South Asia (AMESA) regions, its “beverage volume declined 25%, reflecting double-digit declines in India and Pakistan, a low-single-digit decline in Nigeria and a high-single-digit decline in the Middle East.”
India’s lockdown coincided with the April-June quarter, the peak season and while lockdown curbs began to be eased in May, consumers have largely stayed indoors. Localised lockdowns across various states including Haryana, UP, West Bengal and Karnataka have further disrupted businesses, industry officials say.