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Coca-Cola could close Indian plants if ‘sin tax’ goes ahead

By RJ Whitehead

- Last updated on GMT

Photo: iStock
Photo: iStock

Related tags Bombay high court Tax India

Coca-Cola would have “no option” but to consider shutting down some of its Indian factories if the government accepted a recommendation to place a significantly higher GST rate on aerated drinks.

The company said that bracketing the segment alongside tobacco and expensive cars, which have also been slated for the 40% rate, would lead to a sharp decline in consumption and prompt it to review its manufacturing capacity. 

Coca-Cola currently has 57 factories and bottling plants in India and gives direct and indirect employment to more than 200,000 people, it said, though this number could take a hit if the so-called “sin tax” were adopted.

The tax has been recommended by a committee that is investigating the implementation of a country-wide GST to replace the multitude of individual taxes already in use.

The government-appointed panel, led by chief economic advisor Arvind Subramanian, last week proposed that aerated drinks, tobacco and premium cars should be taxed much higher than a standard GST rate of 17-18% that would apply to most other products and services.

Aerated drinks with added sugar currently draw a central excise duty of 18% and a state value-added tax of 12.5%, combining for a total indirect tax of 30.5%.

Coca-Cola has since despatched a senior executive to meet Subramanian to raise concerns over the tax and the damage it might do to both the company and the wider industry.

The Coca-Cola Company believes in India and identifies it as one of its strategic growth markets​,” the firm said in a statement, adding that it had already invested more than US$2.5bn and was on course to spend a further US$5bn in the country by the end of 2020.

It said a 40% tax on aerated drinks was not in line with the “Make in India​” programme that is central to the government’s manufacturing policy and places an emphasis on food processing. 

Rather, it would have a “negative ripple effect on the entire beverage ecosystem​” that would affect retailers, distributors, transporters, equipment manufacturers, farmers and raw-material producers, the company said. 

In contrast, PepsiCo has taken a more pragmatic stance on the issue than its great rival. Shiv Shivakumar, chairman of the company’s Indian subsidiary, has said he supported a unified GST rate, and was confident that the government would "take a balanced view of taxation with respect to our industry​”.

A number of countries including Britain, the Philippines and Australia have been obsessing over whether to introduce a tax on sugar, in most cases of 10-20%, to address increasing levels of obesity and instances of lifestyle diseases.

In India, the world’s third most obese nation after America and China, the per-capita rate of soft drinks is extremely low, though instances of diabetes are skyrocketing. Unlike in other countries, the potential health benefits from a soft drinks tax have rarely been mentioned in government circles, though the public health lobby has called the proposed tax a “positive and proactive step​”.

In 2014, Stanford University's Sanjay Basu released findings​ that even 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 south Asia…

Packaged foods growth driving Indian ready-to-eat innovation

The perceived convenience associated with packaged food has been driving lightning growth in the segment, according to an Assocham report.

Processed

Rising incomes and younger households in India’s main cities suggest that ready-to-eat foods will continue to surge over the next two years, the association of chambers of commerce said. 

Since 2010, the packaged food segment, which includes beverages, dairy products, snacks and baked foods, has grown at an average annual rate of 32.5%, according to Assocham. 

This figure is set to grow to 35% up to at least 2017, with the market reaching a value of US$50bn from its current $32bn. Urban households account for 80% of such purchases.

With around 76% of the nuclear families feeling that they have less time to spend in the kitchen, households with working parents and young children now serve on average 10-12 packaged meals a month, the report said. Meanwhile, nearly 79% of unmarried people prefer convenience foods.

Categories including dairy products, pastas, ketchups, jams and baby food have seen the greatest rise, while consumers are now buying more packaged beverages and frozen foods as part of their groceries.

This rise in processed foods has prompted manufacturers to concentrate on developing innovative new food products to keep up with the speed demand growth.

In 2013, PepsiCo’s global chief Indra Nooyi said the company would invest Rs330bn (US$4.9bn) by 2020 and focus on the growth of its Kurkure and other snack brands.

More local packaged food and beverage companies have followed with their own such announcements. 

Firms such as Gujarat-basedBalaji Wafers, Indore’s Prataap Snacks, Bikaner Bhujia, Bikano snacks of Delhi and Bengaluru-based Maiyas have all sought to add new products, raise capacity and expand, many of them doing so with venture capital funding.

Indian supplements market to double in five years

India’s nutraceuticals market size is set to double in the next five years, though up to seven in 10 dietary supplements are fake.

Supps

A report by market researcher RNCOS found that 60-70% of supplements on sale across India were fake, counterfeit, unregistered or unapproved.

Yet the market, which is currently worth around US$2bn, is set to grow at an average annual rate of 16% to US$4bn by 2020, led by the growing popularity of vitamins.

Such products now account for 40% of the dietary supplements market, followed by herbal supplements (30%), probiotics (10%) and omega-3s (5%). Amino acids and essential oils together make up the remaining 15% share.

Vitamin and mineral supplements will form major areas of opportunities for nutraceuticals players in the coming years driven by rising demand from an evolving customer base with the middle-class population being the major consumers in this regard​,” the report said.

Co-author Assocham recommended that the industry should collaborate to police the growing number of fakes and unapproved products.

Small committees should be built at block levels to check the prevalence of counterfeit products in the market and immediately discard them as they bring a bad name to the industry​,” it said.

The report said that an increasingly affluent population and greater health awareness was behind the growth in the use of supplements, especially among younger Indians.

According to an earlier study, around 78% of urban adolescents said they consumed dietary supplements daily to enhance their physical appearance, improve immunity and increase their energy levels.

Was the Maggi “ban” in fact a ban? FSSAI claims it wasn't

India’s food regulator never “banned” Maggi noodles but instead issued a show-cause notice to Nestlé for an explanation about lead levels and product labelling, a court has heard.

Maggi

Instead of replying to the show-cause order, the company approached Bombay High Court, argued the Attorney General, who is representing the FSSAI.

The regulator is currently petitioning the Supreme Court to stay the lower court’s decision to overturn a “ban​” on the noodles.

The FSSAI argued that Bombay High Court had “erred​” in concluding that the show-cause notice had been a ban order. 

The lower court’s decision to lift the “ban​” led to the return of Maggi noodles to the shelves in the wake of claims by a state regulator that the product contained excessive levels of lead and monosodium glutamate. Subsequent testing showed these claims to be unfounded.

The regulator said it had only asked the company to stop further manufacture, production, import distribution and sale of its noodle variants in the public interest during the period of consideration of the show-cause notice. 

This, it argued, would not have constituted a ban order, especially when Nestlé had already announced it would recall Maggi noodles, and went on to destroy over 25,000 tonnes of the product.

The Supreme Court bench has now given Nestlé and the Maharashtra government until January 13 to respond to the FSSAI’s arguments.

Meanwhile, Nestlé has asked for a stay on separate proceedings in the consumer forum, which is hearing a class action suit by the government against the Indian subsidiary, and has ordered testing of fresh samples of Maggi.

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