Industry bodies including the Indian Beverage Association (IBA) as well as the Confederation of All India Traders (CAIT), a body that represents more than 80 million traders and 40,000 trade associations, have appealed to the finance ministry to reduce the tax on carbonated beverages citing the strain it puts on small businesses, which operate with limited margins and working capital.
Currently, a tax of 40% (28% GST plus 12% compensation cess) is levied on aerated drinks. In a communication sent to the finance minister on Tuesday ahead of the GST Council meeting, the IBA requested a GST rate reduction on carbonated beverages to 18% and for such products to be declassified as ‘sin or demerit’ goods.
India is set to announce lower GST rates this week. The GST Council, chaired by finance minister Nirmala Sitharaman, is expected to meet on 3 and 4 September to discuss moving to a two-slab structure of 5% and 18%.
“At 18% GST, we will be pricing our products attractively for the consumers thereby passing the benefit of rate reduction. We would like to assure you that in addition we will be creating 30 lakh new jobs by 2030 in addition to committing an investment of Rs. 85,000 crores by 2030 in India, especially in priority districts. This will also increase the income and profitability of kiranawalas along with the dependent ecosystem and secure their livelihoods so that they are able to survive the onslaught of quick and e-commerce,” IBA said in its letter.
Industry bodies have also been batting for a sugar-based taxation approach under which beverages are taxed based on how much sugar they contain. For instance, IBA has asked that fruit-based juices, currently taxed at 12%, be put in the 5% slab.
It has also appealed that beverages priced up till Rs. 30 be accorded an 18% GST treatment as the first step. The appeal comes in the wake of the prime minister’s announcement of a “new generation of GST reforms” that promises to reduce taxes on everyday items.
India has among the highest tax rates on fizzy drinks in the world with an exception of UAE-Saudi Arabia. The worldwide average rate of taxation of aerated beverages is around 18%, per think tank ICRIER.
Unorganised players dominate
Meanwhile, in a separate communication to the Finance Minister CAIT said high tax on carbonated drinks puts significant strain on small businesses, which operate with limited margins and working capital.
“The high retail price due to the 40% tax rate ties up liquidity, making it difficult for them to manage inventory and reducing their net earnings potential,” per the letter issued last week.
Beverages contribute over 30% of kirana store income across nearly 6 million kirana outlets nationwide, and provide the highest FMCG retail margins (19–24%), according to industry statistics. The segment is also highly price sensitive with over 70% of sales happening at the Rs20 or less price point.
CAIT also highlighted the broader issue of a lack of formalisation in the beverage sector. It noted that more than 80% of the industry is unorganised, leading to significant revenue leakage for the government and the circulation of counterfeit products.
A lower GST rate, CAIT said, would ease the entry barrier for small units, encouraging them to join the formal industry while widening the tax base.
It would also “deliver meaningful relief to kiranawalas, hawkers and pan shops, improve their earnings, support job creation across the value chain, and expand the government’s revenues through greater formalisation,” said National president, CAIT. It has also sought the removal of compensation cess.
CAIT noted that contrary to potential concerns about revenue loss, a fiscal analysis by Tax India Online suggested that the proposed tax cut was fiscally sustainable.
The analysis projected a minor initial revenue impact of approximately ₹277 crore in 2025, CAIT said. However, from 2026 to 2030, it is expected to generate a net revenue surplus of ₹32-591 crore annually owing to increased compliance and consumption.
The industry has long stated that aerated beverages are wrongly classified as ‘sin/demerit goods’, leading to 40% taxation. This equates them to other categories such as tobacco and pan that draw hefty taxes.
India’s non-alcoholic beverage industry was valued at $49.6 billion In 2023, and is projected to grow to $64 billion by 2028 with the participation of large companies such as Coca-Cola, Pepsi, Reliance Consumer Products and Parle Agro, CAIT said.
Over recent years, the sector has invested Rs. 80,000 crore and plans an additional ₹85,000 crore investment if GST rationalization is implemented, per industry executives. The sector has been among the fastest-growing categories in FMCG, contributing to income growth for 25,000 distributors, one of the largest truck fleets in FMCG logistics, and more than 50,000 gig workers.
