The ambitious plan of Prime Minister Narendra Modi of adding fruit juices to carbonated drinks and pushing for local manufacturing seems to be hitting a roadblock due to the GST Council’s ‘lack’ of interest.

In the 45th GST Council meeting, it was decided that "Carbonated Fruit Beverages or Fruit Drink" and "Carbonated Beverages with Fruit Juice" attract a GST rate of 28% and Cess of 12%, totalling to 40% tax.

The GST Council’s decision to add an extra 12% tax to the already ‘overestimated’ 28% tax on the carbonated fruit drink has sent shock waves through the industry which largely comprises MSMEs.

Experts feel that this was in sharp contradiction of the Prime Minister’s idea wherein he called upon the industry in a public meeting to add fruit juice to carbonated beverages.

Arpita Mukherjee, Professor, ICRIER, says, “In India, unfortunately all carbonated drinks are considered as bad, for tax purposes. We have a limited variety of fruit based carbonated drinks and companies started manufacturing them after the Prime Minister's speech that adding fruits to carbonated drinks will help sourcing from farmers and increase their income. The taxes should be reconsidered on the ground that this can help farmers and in the development of the value chain.”

Meanwhile, an industry insider says that their request for a rational tax on fruit based carbonated drinks was ignored.

This segment has attracted an annual growth of 30% with major manufacturers belonging to the MSME sector. Presently close to 300 companies are involved in this business across the country while this decision has put a question mark on their survival.

“Now the synthetic carbonated drink and fruit based carbonated drink become equal,” the industry insider says and added that the business has increasingly become unviable.

“When there is no difference between the synthetic carbonated drinks and fruit based carbonated drinks and the taxation was same while the recipe making (adding fruit juice) adding to the cost, the business becomes unviable,” says an industry representative who did not wish to be named. 

Nutrition based tax

The experts feel that the taxation should be based on the nutrition level of the food product rather than assumption.

The industry insider said that soon after the prime minister’s call, there was a meeting held in MoFPI (Ministry of Food Processing Industries) asking the industry to come forward with the plan. Already two years have gone in research, development, and instituting plants for such manufacturing while now they are finding themselves in the midst of nowhere.

The industry experts feel that in many developed countries, the taxation on food products was often based on nutrition and India should also adopt such a measure.

“The higher tax always tends to force the consumer to go for a cheap or low grade product. There is no point in equating healthy and unhealthy products at the same tax bracket. And the higher tax on fruit based carbonated drinks is based on ‘broader classification’ rather than nutrition. The higher taxation is hampering the objectives with which the Prime Minister had made a pitch for such products like sourcing directly from farmers, thereby helping in value addition and increasing income,” said an industry insider.