The quickest way to cool down during the summer heat is usually grabbing a cold bottle of carbonated drink. With prices of almost everything going up because of inflation, the only thing that was able to retain pre-covid prices were fizzy drinks. But not for long.
In the forthcoming FY24 budget, a proposal for a 5% turnover tax on the beverage business has been made, which is currently at 0.6%.
And it's very clear that in order to absorb this additional turnover tax, beverage companies may have had to raise prices by 20%-30%.
Most crucially, the proposed increase in the turnover tax could stifle growth in the beverage business.
Many of the industry's players will be forced to leave, while others will be forced to return to being loss-making operations, and future investments would be greatly discouraged and hampered.
As a result of the price increase, consumption may plummet, and companies' revenue collection may suffer. According to the beverage industry, this will lower government income collection from the beverage sector by 20%-25%.
According to them, the Food and Beverage sector accounts for 1.1% of Bangladesh's GDP and has more than doubled in size since 2012.
The beverage industry in Bangladesh is growing at a 20% annual rate, and this trend is projected to continue given the country's low penetration and consumption of "Ready to Drink" beverages.
The beverage sector currently contributes roughly Tk1500 crore to the national exchequer, which will be drastically decreased as a direct result of the proposed turnover tax increase.
Investment in Bangladesh
The beverage industry is creating value for local sourcing through its value chain—where the majority of raw materials are supplied locally—and is also, directly and indirectly, supporting the establishment of roughly 3,50,000 jobs.
Given the potential for expansion, there is a solid investment strategy in place.
Coca-Cola, for example, plans to invest $200 million in Bangladesh over the next five years, according to the company's global Chairman and CEO James Quincey, who visited the country in 2020.
Apart from that, other companies are investing in the industry.
Coca-Cola Bangladesh Beverages, a Coca-Cola-owned bottling company, and franchise Abdul Monem Ltd have invested more than TK1000 crore and Tk290 crore, respectively, in beverage manufacturing.
Transcom Beverage invested Tk756 crore, Globe Soft Drinks, Tk565 crore, AST Beverage, Tk384 crore, Pran Beverage, Tk485 crore, Partex Beverage, Tk229 crore, Sajeeb Corporation, Tk140 crore, and Meghna Group invested Tk336 crore.
New players are joining the market, local businesses are expanding, and the industry has a growth strategy that includes innovation, job creation, skill development, and producing shared value for communities.
The planned 5% turnover tax on the beverage industry could have a negative influence on this growth potential. The turnover tax is currently set at 0.6%.
In comparison with neighboring countries
According to market experts, the beverage business is already struggling under the existing tax framework, where they must shoulder a large tax incidence. Aside from corporation and commercial taxes, the beverage industry is subject to Supplementary Duty (SD) and VAT at a combined rate of 43.75% for CSDs.
This percentage is greater than neighbouring nations, 40% in India, 38.43% in Nepal, 30% in Bhutan, and 6% in the Maldives and far higher than the majority of the world - the majority of countries pay no excise or extra duties on soft drinks.
Industry's take
Mayank Arora, managing director of Coca-Cola Bangladesh Beverages told Dhaka Tribune: “We really appreciate the NBR's revenue strategy 2032, which is prioritizing equity and fairness. In line with this, we request a fair, consistent and equitable taxation regime.”
On the other hand, requesting anonymity, an NBR official said: “Earlier we devised a specific path with revenue measures to collect an additional VAT in FY24 through four channels, to meet the IMF conditions.”
“Beverage and tobacco were at the forefront of the list because the government plans to squeeze more out of them,” the official also added.
Rezaul Karim, general manager of Sales and Marketing at Akij Food and Beverage told Dhaka Tribune: “When the high cost of sugar import, unbridled inflation, high cost and shortage of energy, and inability in opening LC, are acting as impediments to the industry's growth, a tax hike of more than eight times in a single push would be awful for the industry.
“As a result, it will be difficult for companies like ours to sustain, which will have an impact on beverage prices and employment in the sector. We ourselves had a meeting yesterday. Soon we will submit a formal proposal to the policy level of the government.
“We will urge, in view of this, the NBR and tax authorities should revisit the tax structure for the beverage industry and take back the proposed turnover tax hike of 5%, to let the thriving industry become strong in step with the government's growth ambitions,” he added.
