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‘Sin tax’ of 40% proposed to cover Indian soft drinks

By RJ Whitehead

- Last updated on GMT

Photo: iStock
Photo: iStock

Related tags: Public health, Food, India

A panel that is looking into the implementation of a new system of GST in India has proposed levying a 40% “sin tax” on aerated drinks, even though consumption is among the lowest in the world.

The working group, chaired by the government’s chief economic advisor, Arvind Subramanian, suggested that the tax be added to several so-called vices, including tobacco and luxury cars.

The rate would be much higher than the 17-18% GST to be levied for most goods and services under Subramanian’s proposal.

Prime Minister Narendra Modi's government is seeking to push through the nationwide tax, which will replace the current complex system of state-specific taxes with a uniform rate in a bid to make doing business easier across all segments and states.

The reform, which requires a constitutional amendment that must be approved by a two-thirds parliamentary majority and at least half the states, has faced stiff opposition in parliament. It is being debated in the upper house of parliament this week, where Modi's Bharatiya Janata party lacks a majority.

Subramanian has defended his committee’s proposal, saying the recommendation was based on the current tax structure. He said currently many of the goods the proposal covers "are already taxed at very high rates​" and the recommendations are "just a status quo​”.

Central excise duty levied on soft-drinks now runs at 18%, though value-added tax and additional state taxes are levied in addition to this.

Representatives of the industry, which is worth Rs140bn (US$2.1bn), believe that the country's per-capita consumption of aerated drinks is among the lowest in the world​, and say that a punitive tax rate would have a heavy impact on their business.

Arvind Varma, secretary general of the Indian Beverage Association, told The Hindu Businessline​ that the body would and look into the recommendations and see how things unfold.

The industry has previously complained about being lumped into the same category as tobacco products. It has also argued that aerated beverages provide instant energy and hydration in a hot and humid country, and are hygienic and sold at affordable prices.

However, the proposal is being welcomed by public health advocates. “The proposal to tax sugar sweetened beverages similar to tobacco is a positive and proactive step,” said Arun Gupta, a senior paediatrician. 

"Increased sugar intake has been proven to be a bane for public health in countries where it is widely consumed. In addition, the government of India must also regulate marketing and promotion of such products especially targeting children​."

In 2014, Stanford University's Sanjay Basu released findings​ that a 20% tax on sugar sweetened beverages in India would “avert 11.2m cases of overweight/obesity and 400,000 cases of type 2 diabetes between 2014 and 2023​.”

All of the evidence we have to date suggests that taxing sugary drinks would be far more powerful and effective for protecting public health than simple education measures​,” said Dr Basu said of the current tax proposal.

More stories from India…

India’s ‘inconsistent’ regulator deals blow to food manufacturers

India’s food processing industry is facing an “inconsistent and restrictive regulatory environment​”, according to the minister that represents it, prompting the government to implement measures to ease product approval regulations.

regulation

Speaking at a conference organised by Ficci, which represents the country’s chambers of commerce, food processing minister Harsimrat Kaur Badal said that ministries were “taking necessary steps​” to encourage the food regulator to make it easier for companies to gain product approvals.

The regulator has sought public opinion on some 11,500 ingredients, with a deadline for comments slated for later this month, after it was censured by law lords in August.

On that occasion, the Supreme Court called the FSSAI’s policy to rubber-stamp products, even if the ingredients they contained had already been approved or deemed safe, “arbitrary and illegal​”.

"So, instead of product approval now, there will be ingredients which are approved and you can go ahead with your innovation and production of the products. This is to harmonise with international standards​," said Badal.

However, the regulator has indicated that it would reintroduce the system of pre-launch product approvals, Business Standard​ has highlighted in an editorial, saying the FSSAI had “dealt a blow​” to food manufacturers.

The column was in response to criticism last month by the Indian Drug Manufacturers Association, which claimed that the regulator had stated it “will soon use the legal route to reintroduce the system of pre-approving final product via regulations​”.

The uncertainty and confusion over this issue resurfaced with the FSSAI declaring that even while respecting the court's decree over its advisories, it will come up with new regulations to revive the approval procedure​,” the paper wrote.

This has turned prospective investors—both domestic and foreign—wary of committing resources in this sector​.”

Meanwhile, while addressing the Ficci conference, Badal said that India’s processed food segment required government support if it was to grow in line with its potential.

For this to happen, the government would need to implement a demand-driven policy on food and big reforms such as GST, as well as improve poor post-harvest infrastructure leading to high levels of wastage. It also needed to address insufficient soft infrastructure like R&D capabilities and skilled manpower. 

Grass-roots entrepreneurship was needed to empower farmers to develop sustainable growth in food production, she said, while a need for skilled manpower would further push the workforce towards gaining required skills.

FSSAI: 20% of food samples either adulterated or misbranded in 2015

Roughly one-fifth of all food samples tested by public laboratories were found to be “adulterated and misbranded​”, according to data released by India’s food regulator.

Adulteration

Uttar Pradesh, the most populous state, came top of the FSSAI’s annual league table after 43% of the 9,600 samples tested there did not meet food safety regulations. 

Madhya Pradesh led the number of convictions secured with 418 coming from 843 criminal and civil cases, compared to Uttar Pradesh’s 186 from 3,650.

Across India, 74,010 samples were tested in the year to November 24, and 14,599 were found to contravene laws. Of 10,536 cases filed, just over 1,400 resulted in conviction and netted almost Rs110m (US$1.7m) in fines.

Milk and oil are majorly adulterated in food items. Contaminated milk and oil pose a major risk to health. We have to monitor it minutely. We will soon start a campaign on milk and oil in the national capital and spread it to other states. We have written to other states too to keep a tab on food adulteration​,” a senior FSSAI official said.

Related topics: Policy, Supply chain, South Asia, Beverages

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2 comments

Consultant

Posted by Nilabh Singh,

The SIN tax is a very thoughtful and welcome move by the government. Hope as thoughtfully it includes other sinful products as well.

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Director

Posted by Jaisinh Vaerkar,

If the purpose of levying a 40 percent sin tax on tobacco and soft drinks is primarily in the interest of consumer health, the government should then impose the 40 percent sin tax on Indian mithai such as Rosgollas, gulab jamuns, halwa, son paapdi, shrikhand wtc and also on all candy and chocolate products.

The health issues from indulgence products such as mithai loaded with sugar and ghee is not any better than sugar loaded soft drinks.

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