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OCR Page 1 of 108Trade
PEPSICO
The Coca-Cola Company
December 16, 1999
John Podesta
The White House
Washington, D.C. 20500
will follow you with
Dear Mr. Podesta:
weelsusc
The Coca-Cola Company and PepsiCo, Inc. seek your assistance in
gaining relief from discriminatory and punitive taxation which is
imposed on our products by the Government of India. We are writing to
you jointly because we want to underscore the importance our industry
attaches to this issue.
In advance of President Clinton's State Visit early next year and
with important deadlines within India for the approval of a new budget
and major tax reforms, we need your help to see that this issue is
placed at the top of the Administration's commercial agenda during
President Clinton's visit. As you work now with your Indian
counterparts to develop "deliverables" for the President's trip, we
would be grateful for your assistance in urging the reduction of the
discriminatory taxes on our products. Not only will this benefit our
two companies, but it will benefit thousands of PepsiCo and Coca-Cola
workers, partners and suppliers in India -- and send a clear signal
that India welcomes foreign investment.
Our two companies currently employ, directly and indirectly, more
than 125, 000 workers in India. This figure does not include
self-employment provided to vendors, retailers, and artisans, nor does
it take into account the multiplier effect which provides employment
in ancillary industries such as bottling, sugar and refrigeration. In
addition, we have combined direct investments of more than $1 billion.
India subjects American soft drinks to cumulative federal taxes
of 40% -- among the highest imposed on our products anywhere in the
world. There are two components to this 40% cumulative tax. First,
India collects a 24% excise tax on our products. This 24% level is
reserved for a so-called "demerit" band of products. Supposedly, this
band applies to "luxury items" or to products that are considered
"injurious to health." By contrast, other consumer products face
excise taxes of 8% or 16%. Second, on top of the punitive demerit
tax, our products face an additional 16% "surcharge."
India's taxes are also blatantly discriminatory. Coca-Cola and
PepsiCo account for more than 95% of the developing soft drink market
in India. Taxes on competing and substitutable consumer products,
such as coffee, tea and bottled water, are far less than those imposed
on soft drinks. Other food products, such as chocolate and ice cream,
are also taxed at a lower level. By contrast, the current demerit
classification puts our products in the same category as firearms,
ammunition and chewing tobacco. Tax rationalization for the soft drink
industry is a matter of fairness and equity for American producers.
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