Carbonated soft drinks (CSDs) are a key component of the processed food and beverages industry. In 2023, over 44 per cent of the total worldwide revenue of beverages was generated by the CSD sector. The Indian CSD market is relatively small; it generated revenue worth USD18.25 billion in 2022, and lags behind when compared to the sector in many other developing countries such as Thailand or the Philippines. The potential of the CSDs sector to contribute to employment and investment in India remains largely unexplored.
Globally, high sugar carbonated beverages have come under policy scanner due to rising health-concerns related to consumption of sugar and the potential link to non-communicable diseases such as diabetes, obesity and cardiovascular diseases. With growing consumer awareness and an increasing number of countries implementing a layered-sugar tax on such beverages, there is a growing market for reformulated low-sugar beverages. However, in the case of India, all types of carbonated beverages – ranging from low-sugar and fruit-based and/or flavoured carbonated drinks to zero-sugar aerated water are taxed at 28 per cent GST plus a compensation cess of 12 per cent, which totals to a 40 per cent tax. The high taxes on low and zero-sugar CSDs products are not aligned with the recommendations of the World Health Organization (WHO) or health experts/nutritionists in India, who support the concept of a layered-sugar tax. Cross-country comparative data of more than 120 countries world-wide
shows that India has one of the highest taxes for CSDs, and taxes are not linked to healthy options. India also has the highest number of diabetic cases. Yet, there is no policy discussion on linking taxes to healthy CSDs in the country. Therefore, despite government initiatives like ‘Make in India” and “Aatmanirbhar Bharat”, the CSDs segment is not getting enough investments in innovative products. Due to this, start-ups are unable to scale-up, while the consumers are looking for imported products, which they will have access to as the country opens up the sector under trade agreements.
To help design a robust sugar-based GST for the CSDs sector using data and evidence, this policy brief presents the trends and growth in sales across different CSDs product subcategories; presents global best practices in designing layered-sugar taxes and evaluates the Indian tax regime; examines the impact of the high GST and recommends a layered-sugar tax that can help increase government GST collections, limit the intake of added sugars in beverages/support positive health outcomes and incentivise product reformulations leading to the production of healthier beverages, more investment, job creation and the overall growth of the sector.
