India Plans To More Than Double Taxes On Zero-Alcohol Beers: Exclusive

The government will seek to increase tax on drinks such as Budweiser 0.0 and Heineken 0.0 to 28 percent from 18 percent, and levy an additional 12 percent compensation cess, according to the proposal—BloombergQuint has reviewed the documents. As of now, no cess is levied on zero-alcohol beer.

The proposal will be taken up in the GST Council’s next meeting; the date is yet to be finalised.

Non-alcoholic beer is more profitable for companies due to lower taxes than the regular beer. But the proposed move would bring levies on such beverages at around 40 percent, the same as aerated soft drinks. The government, in September, had also imposed a higher GST and cess on caffeinated drinks to bring them on par with sugary sodas.

Non-alcoholic beer is 0.25 percent of India’s $6-billion beer market, according to the government’s document. That’s about Rs 1,000 crore. So the government could get an additional tax revenue of Rs 250 crore, according to the proposal.

While it’s a small amount given India’s overall tax revenue, the government is looking to plug every hole in a year it stares at missing fiscal deficit target amid lower-than-expected tax collections in a slowing economy. The government has formed a panel to suggest measures to augment revenues from GST, and plug leakages.

According to the government’s proposal, the import of non-alcoholic beer jumped 599 percent year-on-year in 2018-19 to Rs 5.2 crore. And demand is surging though on a low base. In April-August of FY20, in bound shipments increased to Rs 6.3 crore, according to data on commerce ministry’s website.

An increase in rate of GST on non-alcoholic beers may entail a corresponding increase in prices for these drinks, and subsequently reduce demand, said Abhishek Jain, a partner at EY India. Since companies, due to commercial reasons, will not be able to increase prices, a potentially higher GST may impact their profitability, Jain told BloombergQuint.

Besides AB InBev’s Budweiser 0.0 and Heineken 0.0, other zero-alcohol beers include Miller, Carlsberg. AB InBev is expected to launch Hoegaarden 0.0 in India soon.

AB Inbev and Heineken didn’t respond to BloombergQuint’s emailed queries. Carlsberg could not be reached for a comment. BloomberQuint has emailed queries to the Finance Ministry. The story will updated once it responds.

AB InBev, which also makes Stella beers, has set itself a global smart drinking goal to ensure that low-or no-alcohol beer products make up at least 20 percent of its global beer volume by 2025.