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This Is Coca-Cola’s Response to India’s ‘Sin’ Tax

December 11, 2015, 5:58 PM UTC
Coca-Cola Soft Drinks
A customer shops near bottles of Coca-Cola Co. soft drinks at a supermarket in the Brooklyn borough of New York, U.S., on Tuesday, July 26, 2011. Coca-Cola said last week it will raise North American drink prices 3 percent to 4 percent in the second half of 2011. Photographer: Ramin Talaie/Bloomberg via Getty Images
Photo by Ramin Talaie/Bloomberg via Getty Images

The Indian subsidiary of Coca-Cola (KO) said on Friday it may have to close some bottling plants if the government pushes through a proposal that would subject fizzy drinks to a 40 percent “sin” tax, as part of a broader fiscal overhaul.

The beverage maker, which operates 57 factories and bottling plants across India, said a proposal to group sugary sodas with higher-taxed luxury cars and tobacco would hurt demand for its drinks.

“It will lead to a sharp decline in consumer purchase,” Coca-Cola India said in a statement. “In these circumstances, we will have no option but to consider shutting down certain factories.”

India’s ruling party is trying to push a national goods and services tax (GST) through parliament that would replace a myriad of state sales taxes and shake-up government revenue.

A government-appointed panel examining GST has suggested a standard rate of 17% to 18%, and a higher tax of 40 percent on some goods including the carbonated drinks Coca-Cola sells.

Several countries are debating so-called “sugar taxes” to tackle obesity and encourage healthier lifestyles. While more than a fifth of India’s population lives below the official poverty line, the country is home to the third-highest population of obese people after the United States and China, according to medical journal The Lancet.

The chairman of Coca-Cola rival PepsiCo (PEP) in India, Shiv Shivakumar, said the company supported a unified tax in principle, and said he was confident the government would “take a balanced view of taxation with respect to our industry.”

Coca-Cola India, which employs 25,000 staff, said it is on course to invest $5 billion by 2020 as it looks to raise production to target a growing middle class.

The company re-entered India after economic liberalization in the early 1990s.