The Hindu Business Line : Cola majors say lower prices sustainable only if SED is removed

POINTING out that soft drinks are the only food and beverage product to attract 8 per cent Special Excise Duty, Coca-Cola and Pepsi have said in their Budget wish list that unless this levy is waived, lowered prices may no longer be sustainable.

The two companies have been making a case for lowering SED for the last several years but this time, they have supported their contention by linking it to lowered prices — a reference to the Rs 5 pack size introduced in India last year - saying unless SED is removed, this lower price point may become unsustainable.

In a presentation before apex industry chambers such as CII and FICCI, the two companies said "to drive growth, particularly in the underdeveloped rural areas the industry lowered prices in order to make soft drinks more affordable to the consumers. However, this broad development initiative can only be sustained if the current tax system is rationalised by eliminating SED".

The two soft drink companies have also reiterated that "discriminatory and excessive" tax burden is jeopardising their viability as an industry in India and that the soft drink industry is faced with heavy accumulated losses. Although no figures for losses have been provided by either company, sources admit that despite the pesticide controversy, soft drink sales have been growing at a healthy double-digit rate mainly because of the price cut.

But even while volume growth has been healthy, the two companies still face up to 40 per cent taxation outgo on MRP (including excise, sales tax and retail margin) for each soft drink bottle sold.

"Aerates waters (carbonated soft drinks) are the only products in the food and beverages category which are subject to 8 per cent SED. This is on top of the 16 per cent general excise duty and the state taxes (averaging 18 per cent)," the soft drink industry said in its presentation.

Taking the example of Pakistan, the two companies have said that the neighbour has more than double per capita consumption of soft drinks at 17 servings per annum since the aggregate tax burden there is only 15 per cent against India's 24 per cent (plus sales tax).

"We would, therefore, request that, as recommended by the Kelkar Committee, the SED on soft drinks is removed. It would revitalise the soft drink industry and enable it to reinvest, particularly in rural areas to accelerate growth," Coke and Pepsi said.

The industry has also demanded that the abatement process be made more transparent and that the government set up an Abatement Committee to streamline the whole process. At present, 45 per cent abatement is available on MRP for each soft drink bottle sold.

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