Drinks firms lobby for inclusion in Indian tax reform

Alcoholic drinks firms are lobbying against exclusion from a proposed goods and services tax in India, which would simplify payments and lower the cost of doing business.

Alcohol companies are lobbying for inclusion in a simplified tax reform proposed by India’s newly elected government

The economic reform proposed by the country’s recently elected Prime Minister Narendra Modi would mean businesses would pay a nationwide tax similar to that found in the UK, rather than the country’s existing multitude of state-level levies.

However, alcoholic drinks could be excluded from the measure due to disagreements between India’s central and state governments, affecting India’s US$6 billion alcohol market including companies such as Diageo, Pernod Ricard and SABMiller.

According to reports by the Financial Times, Ivan Menezes, chief executive of Diageo is scheduled to travel to New Delhi next week in a last ditch attempt to persuade Modi’s government to not exclude the sector from the change.

“If alcoholic beverages are not included it will have a hugely negative impact on the sector,” said Abanti Sankaranarayanan, managing director Diageo India.

“I won’t go so far as to say it will kill the industry but it will be very damaging.”

The new legislation is expected to be pushed through in the next few months and launched fully by 2016.

So far, India’s states have successfully campaigned to exclude alcohol sales from the tax reform, which provides huge revenue to a lot of state governments.

“A proper, good GST would be for India a mini-version of what entry into the WTO [World Trade Organisation] was for China – the single most important, path-breaking reform,” commented Rajeev Malik, senior economist at broker CLSA. “But if you exclude more and more things its effectiveness actually goes down.

“It’s important not to compromise its design.”