Varun Beverages Shares Dip 5% on GST Hike Proposal to 35% for Aerated Beverages

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Varun Beverages Shares Dip 5% on GST Hike Proposal to 35% for Aerated Beverages

The Group of Ministers on GST rate rationalisation has recommended to raise tax on aerated beverages to 35% from the current 28%.

December 3rd, 2024 News

Shares of Varun Beverages, a key bottler for PepsiCo, plunged 5% during early trading on December 3, reacting to reports of a potential GST rate hike on aerated beverages. By 9:40 AM, the stock had pared some losses, trading 1.7% lower at ₹621.45 on the NSE.

Proposed GST Rate Hike

The Group of Ministers (GoM) on GST rate rationalisation has recommended increasing the tax on aerated beverages, tobacco, cigarettes, and other 'sin' products from the current 28% to 35%. According to reports from CNBC-Awaaz and PTI News, the GoM also suggested creating a new 35% GST slab specifically for such products.

An official stated:
"The GoM has agreed to propose a special rate of 35% on tobacco and related products and aerated beverages. The four-tier tax slab of 5%, 12%, 18%, and 28% will continue, with a new rate of 35% being proposed."

Impact on Aerated Beverages Industry

The proposed tax increase is another challenge for India's carbonated soft drinks segment, which already faces significant hurdles. A report by the Indian Council for Research on International Economic Relations (ICRIER) highlighted:

High GST taxation has hindered the segment’s growth.
This is despite government initiatives like ‘Make in India’ and ‘Aatmanirbhar Bharat’, aimed at boosting domestic manufacturing.

ICRIER stated:
"Despite government efforts, the carbonated soft drinks segment struggles to reach its scale potential due to barriers like high tax brackets and compensation cess under the GST regime."

Stock Performance

Varun Beverages has delivered strong returns in the past year, with its stock surging 45%, significantly outperforming the broader Nifty 50 index, which gained 18% over the same period.

Market Outlook

The proposed GST hike, if implemented, could weigh heavily on the carbonated beverages industry and related stocks. Investors are likely to monitor developments closely, as higher taxation might affect both consumer demand and profit margins for companies like Varun Beverages.

Key Points at a Glance:

Varun Beverages shares dropped 5% following reports of a GST rate hike to 35%.
Group of Ministers (GoM) recommends a new 35% GST slab for aerated beverages and tobacco products.
India's carbonated drinks segment struggles due to high taxes, despite initiatives like ‘Make in India’.
Varun Beverages stock outperformed the market with a 45% rise in the last year.