Coca-Cola India says may shut some factories if ‘sin tax’ is implemented

Meenakshi Verma Ambwani New Delhi | Updated on January 22, 2018

Bottles of Coca Cola are seen in a store display in New York February 9, 2010. Coca-Cola Co reported stronger-than-expected quarterly sales on Tuesday as higher demand for its beverages in China, India and Brazil offset a drop in North America, sending the world's largest soft-drink maker's shares up 2.6 percent. REUTERS/Lucas Jackson (UNITED STATES - Tags: BUSINESS FOOD)

Beverages major Coca-Cola India feels that the 40 per cent tax on aerated beverages, proposed by the Chief Economic Advisor Arvind Subramanian panel on GST rates, will negatively impact the consumer demand and compel the company to shut down some of its plants.

The Arvind Subramanian-committee has termed it as a sin or demerit tax and has put aerated beverages in the same category as luxury cars and tobacco products.

In a statement Coca-Cola said while it considers India to be a strategic growth market, but the proposed GST tax rate is not in line with the “Make in India” programme.

It said that an acceptance of the recommendation 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.”

Meanwhile, Shiv Shivakumar, Chairman & CEO, PepsiCo India told BusinessLine that “We are supportive of GST and believe this will be good news for business and the Indian economy. However, a tax rate of 40 per cent is high…We are confident that the Government will take a balanced view of taxation, with respect to our industry.”

“It will lead to a sharp decline in consumer purchase, and for a demand-driven industry, it will mean a significant rationalisation of manufacturing capacity. In these circumstances, we will have no option but to consider shutting down certain factories,” Coca-Cola said.

When the excise duty was hiked on aerated beverages in 2014, companies had to increase prices by 2-5 per cent. The aerated beverages makers though increased prices only on larger packs.

In the past, the industry has been stressing on the country’s need for affordable hydration products and that taxing the organised industry will lead to rise in spurious products.

Coca-Cola India has invested over $2.5 billion in setting up 57 factories, supporting 30 lakh retailers and 7,000 distributors. The company said it is on course to invest additional $5 billion in India by end of 2020. In the past 20 months, the company has set up three greenfield sites, of which two have become operational.

“Much like all other business enterprises operating in India, we expect the Indian GST to bring about a leap forward and create a much cleaner, unified, taxation system that propels the India growth story forward,” the company added.

Published on December 11, 2015

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