Varun Beverages shares slip over 5% as GST on aerated beverages may be hiked to 35%

Shares of Varun Beverages, one of the largest bottling partners of food and beverage giant PepsiCo, dropped as much as 5.2% on Tuesday to Rs 600 on the BSE after the Group of Ministers (GoM) on GST rate rationalization decided to hike taxes on sin goods like aerated beverages, cigarettes, tobacco, and related products to 35% from the current 28%.

The GoM has proposed that the 35% special GST rate on aerated drinks, along with tobacco and tobacco products, will be added on top of the existing four-tier tax structure, with slabs at 5%, 12%, 18%, and 28%.

For Varun Beverages, most of its revenue comes from India's aerated beverages segment, which has struggled to achieve its full potential due to challenges such as high GST taxation. Shares of Varun Beverages have risen 2.6% in one month and 9% in six months.


Under GST, essential items are either exempted or taxed at the lowest slab, while luxury and demerit items attract the highest slab. Luxury goods like cars, washing machines, and demerit goods like aerated water and tobacco products attract a cess on top of the highest 28% slab.

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The GoM report is expected to be discussed by the GST Council, chaired by the Union Finance Minister and comprising state counterparts, on December 21. A final decision on GST rate changes will be taken by the council.

In total, the GoM on rate rationalization will propose tax rate adjustments for 148 items to the GST Council. "The net revenue impact will be positive," an official said.

Varun Beverages shares have risen 43.4% in a year, while the Nifty 50 index has gained 18% during the same period.

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