The GoM report is expected to be discussed by the GST Council — chaired by Union Finance Minister and comprising her state counterparts — on December 21. A final decision on GST rate changes will be taken by the council.
“The GoM has agreed to propose a special rate of 35 per cent on tobacco and related products and aerated beverages. The four-tier tax slab of 5, 12, 18, and 28 per cent will continue and a new rate of 35 per cent is proposed by the GoM,” said the official.
Currently, GST is a four-tier tax structure with slabs at 5, 12, 18, and 28 per cent.
ALSO READ: Varun Beverages shares slip over 5% as GST on aerated beverages may be hiked to 35%Under GST, essential items are either exempted or taxed at the lowest slab, while luxury and demerit items attract the highest slab. Luxury goods like car, washing machine, and demerit goods like aerated water attract cess on top of the highest 28 per cent slab.The official said the GoM on rate rationalisation has finalised its report on Monday to be presented before the council.
The council will now decide whether there is further scope for rate rationalisation and may decide to retain the GoM so that the rationalisation exercise continues periodically, the official added.
ALSO READ: High tax hindering carbonated soft drinks segment in India reach potential: ICRIER report
Shares of Varun Beverages, one of the largest bottling partners of food and beverage giant PepsiCo, dropped as much as 5.2% on Tuesday to Rs 600 on the BSE after the decision.
For Varun Beverages, most of its revenue comes from India’s aerated beverages segment, which has struggled to achieve its full potential due to challenges such as high GST taxation. Shares of Varun Beverages have risen 2.6% in one month and 9% in six months.
GST sapping the spark
Carbonated soft drinks segment in India is unable to reach its potential in terms of scale expansion due to barriers such as high taxation under the GST regime, said a report by economic think tank ICRIER in October.
The cross-country comparative data on sugar-sweetened beverages (SSB) taxes collated by the World Bank shows that India has one of the highest tax rates for carbonated soft drinks (CSDs) at a total tax rate of 40 per cent as of 2023.