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GST Council hikes caffeinated drinks rates to 28%+12%; relief for hotels
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Monday, 23 September, 2019, 08 : 00 AM [IST]
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Ashwani Maindola and Ranjana Sharma
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The GST Council, chaired by Nirmala Sitharaman, Union finance minister, in its recent meeting, has decided that the tax rates on energy and caffeinated beverages shall be hiked to 28% with an additional cess of 12% as against the current rate of 18%. The effective tax on these drinks would be 40% with this decision.
Reacting to the development, Dr Tahir Sufi, professor & deputy director, hospitality division, Amity University Noida, said, "The GST rate applicable on caffeinated drinks appears to bringing them at par with carbonated drinks, from the current rate of 18 to 28%. However, along with the hike in cess the effective rate would be 40%.”
He added, “This is a sin tax and assumption of the government is that the hike shall discourage the sale of such drinks. Such decisions shall have a direct impact on the prices of caffeinated drinks of brands like Red Bull, Monster and Sting. The prices will witness a sharp increase."
He pointed out, “It is expected that such sharp price rises in such drinks shall lead to a decrease in their consumption if we look at research studies conducted on the impact of tax rise on tobacco products in India and caffeinated drinks in USA. It is an important decision taken by government which can have a positive impact on the health of youth who are the largest consumers of such drinks."
Offering the industry point of view, Dr Bindu Maurya of AFST(I), stated that GST hike on caffeinated beverages from 18% to 28% plus increase in cess is not a very welcome decision for the beverage manufacturers and this will have direct impact on consumer market. This will also impact food sector to a large extent.
Echoing these views, Gurbaxish Singh Kohli, VP, FHRAI & president, HRAWI, said that the impact of GST on caffeinated beverages to be hiked to 28% plus additional cess of 12% will be very much on the industry. India has huge plantations of tea and coffee and we are the biggest consumers and also export them. If caffeinated beverage are considered to be unhealthy, so is smoking which is very much unhealthy for health rather than caffeine. The consumption of caffeine will go down and the industry will face a huge problem because of the same. In hotels and coffee shops, the rate of caffeinated beverages will go up and the consumption will go down as not all the people will be able to afford it."
Besides, the GST Council has offered a major relief to the hospitality sector by reducing the service tax rates for hotel rooms. Now the service tax applicable on hotel rooms shall attract 12% uniform tax across the range from Rs 1,000 to Rs 7,500 per night stay.
Those above Rs 7,500 per night, will be levied 18% service tax.
Currently, the service tax for a Rs 1,000 to Rs 7,500 per night room was under the 18% slab while for above Rs 7,500 per night stay it was 28%.
John Northen, executive VP, Middle East, India and Indian Ocean, Shangri-La Group, welcomed the move and said, “We welcome this progressive initiative by the government. A lower GST rate for the luxury hotel sector will boost revenues and spur demand further among travellers. This in turn will cement India’s positioning as a hotspot tourist destination. The move will also increase the sectors’ contribution to the country’s GDP and foreign exchange.”
Decision on Corporate Tax
Meanwhile, the government has taken another economic booster decision regarding Corporate tax. Sitharaman informed that Corporate tax rates was slashed to 22% for domestic companies and 15% for new domestic manufacturing companies.
She told, “In order to promote growth and investment, a new provision has been inserted in the Income Tax Act with effect from FY 2019-20 which allows any domestic company an option to pay income tax at the rate of 22% subject to condition that they will not avail any exemption/incentive. The effective tax rate for these companies shall be 25.17% inclusive of surcharge & cess. Also, such companies shall not be required to pay Minimum Alternate Tax or MAT.”
Varun Kapur, executive director, Travel Food Services, said that the recent announcement of relaxing Corporate tax rate is a bold move by the government which will accelerate industrial activity and bolster investment across all sectors. It is bound to increase capital formation in the country, leading to business expansion and job creation.
He explained, “This will offer a two-fold benefit to the end-consumer: one - Allow companies such as ourselves to accelerate expansion plans coupled with job creation. And two - the trickle-down effect from the increased consumer confidence and spending power of the Indian consumer, will provide an impetus to growth.”
“The vigour that will be introduced with these measures will kickstart the economy and put it back on the rapid trajectory that we as a country have got accustomed to.''
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