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Coca Cola May Quit India Over Sin Tax

by Mary Swire,, Hong kong

14 December 2015

Coca Cola's Indian unit has warned that it may scale back its production facilities in India if the Government introduces a "sin tax" on sugary beverages, as recommended by the goods and services tax rates committee.

In a statement issued on December 11, Ishteyaque Amjad, Vice President, Public Affairs and Communication for Coca-Cola India and South West Asia, said that the company supports efforts to introduce "a much cleaner, unified, taxation system" under the proposed GST regime, and backs the general thrust of the recommendation of the Subramanian Committee on GST that "the GST should aspire to a single rate, which would then also be the standard rate." However, Coca Cola takes issue with the committee proposal that aerated drinks be subject to a special excise tax rate of 40 percent under the GST regime.

"This is not in line with the 'Make in India' program launched by the Government of India, which recognizes 'Food Processing' as an important sector," Ishteyaque said. He predicted that acceptance of the 40 percent tax recommendations would "have a negative ripple effect on the entire beverage ecosystem, thereby affecting lakhs (hundreds of thousands) 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."

Should the Government agree to introduce the special sin tax, it can expect to subsequently witness "a significant rationalization of manufacturing capacity" in the industry, Ishteyaque warned, with Coca Cola also likely to cease some of its Indian operations. "In these circumstances, we will have no option but to consider shutting down certain factories," he said.

According to Ishteyaque, Coca Cola has invested some USD2.5bn in India, and has 57 manufacturing plants in the country. The company is planning to invest another USD5bn by 2020, but he implied that the 40 percent tax on aerated beverages would put such an investment at risk.

TAGS: tax | investment | value added tax (VAT) | India | goods and services tax (GST) | manufacturing | tax rates | retail | services

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