Context: From 22 Sept 2025, most non‑alcoholic beverages—including “other non‑alcoholic beverages” (HS 2202 91/99), caffeinated drinks, and carbonated drinks (incl. fruit‑based)—move to 40% GST. 

This article explains why that form-based approach rather than nutrition based thresholds penalises genuinely “better-for-you” innovations like zero-sugar seltzers, kombuchas, prebiotic sodas, and non-alcoholic spirits. We unpack how the shift strengthens big cola and energy-drink incumbents (via broader ITC and simpler compliance), raises costs and stigma for homegrown brands, and tilts shelf competition toward the categories the policy favours.

What moved where (with why it matters)

1) Water‑based drinks

• Who’s in the firing line:

  • Flavoured/functional still waters, flavoured seltzers/sparkling waters (even with zero sugar) typically sit in HS 2202 as “other non‑alcoholic beverages” or “goods … flavoured”, so they are now 40%

• Why they lose: They compete head‑to‑head with milk/mylk and fruit‑based drinks that just got pushed to 5%, widening the shelf‑price gap overnight

2) Tea‑based ready‑to‑drink (RTD) beverages

• Likely treatment: Most RTD iced teas / tea tonics are non‑alcoholic, flavoured beverages under 2202 → now 40%. The Council’s rationale explicitly sweeps flavoured non‑alcoholic beverages and caffeinated beverages into 40%.

• Why they lose: They’re branded as “light and healthy,” but price jumps and stigma from the “sin/luxury” slab undercut that positioning

3) Coffee‑based ready‑to‑drink beverages

• Important nuance: Bulk coffee got a rate cut to ~5% (core commodity), but caffeinated drinks (energy/RTD coffee formats marketed as beverages) are explicitly at 40%. So latte‑style RTDs, coffee tonics, “cold brew in a can” can get pulled into 40% if classified as caffeinated/non‑alcoholic beverages. 

• Why they lose: Brand confusion (coffee cheaper, but coffee drink costlier), plus direct competition with 5% milk‑based beverages that can mimic similar taste/energy cues at lower tax.

4) “Healthy” no‑sugar sodas / seltzers (zero‑cal, stevia, etc.)

• Where they land: If they’re flavoured (most are), they fall under “goods … flavoured” in HS 2202 → 40%—even without sugar. Several lists call out “all goods … containing added sugar or … flavoured” and “other non‑alcoholic beverages” at 40%

• Why they lose: The policy doesn’t distinguish sugar‑free; the flavouring hook is enough to push them into 40%, blunting the “better‑for‑you” proposition at the cash register

5) Kombucha & fermented tea

• Classification minefield: Since Kombucha does not fall under a defined category it is clubbed under 'other non-alcoholic beverages' moving to 40% slab from earlier 18%. Inspite of its positioning as a gut-friendly, healthy beverage. 

• Why they still lose (practically): Retailers/distributors may apply a cautious interpretation or push price parity across the “fizzy” shelf. Uncertainty alone raises working‑capital and compliance costs and deters new‑brand launches.

6) Non‑alcoholic “spirits” & alt‑cocktails

• Where they land: Non‑alcoholic distilled/compounded N/A “spirits” typically map to HS 2202 (“other non‑alcoholic beverages”) → 40% under the new regime. They’re flavoured, non‑alcoholic, often caffeinated/functional — all roads lead to 40%.

• Why they lose: These brands already carry premium COGS (botanicals, micro‑scale manufacturing). A 40% slab kills NA movement

7) Prebiotic/probiotic sodas, functional tonics

• Where they land: Nearly all are flavoured non‑alcoholic beverages (HS 2202) → 40% irrespective of the health angle.

• Why they lose: They carry ingredient premiums (fibres, cultures, adaptogens), now stacked with top‑slab GST, yet they don’t qualify for the “healthier” 5% buckets reserved for milk/mylk & fruit‑pulp/juice drinks (non‑carbonated). 

Why the regime “failed to separate good from evil”

1. Policy draws lines by form (HS codes), not nutrition
   The 40% slab keys off “flavoured / caffeinated / carbonated / other non‑alcoholic beverages” rather than sugar thresholds or nutrient profiles. Hence zero‑sugar, low‑cal, prebiotic drinks are treated the same as colas if they’re flavoured

2. A structural price handicap vs. “encouraged” categories
   Milk/mylk beverages, plant‑based milks, and non‑carbonated fruit‑pulp/juice drinks were cut to 5%, creating a 30–35‑point tax spread versus 40% drinks—an enormous retail price headwind for water/tea/coffee‑based “health” SKUs

3. Stigma & shelf dynamics
   Being in the “sin/luxury” bucket muddies brand perception. Retailers may cluster them with colas/energy drinks; consumers will trade down to cheaper 5% categories positioned as “healthy” (yogurt drinks, mylk shakes, juices)

4. Big cola/energy’s relative advantage

   • The rate is the same as before in incidence terms (~40%), but it’s now a single GST instead of GST+cess, which simplifies compliance and—critically—broadens input tax credit (ITC) set‑offs for large players (an inference consistent with the Council’s shift from multi‑levy to a single levy and press coverage on simplification). That favors scale players with deep taxable supply chains. (Inference based on official shift from 28%+cess to 40% GST; precise ITC mechanics await detailed notifications.)
     

What home‑grown “good‑for‑you” brands are up against

• Higher tax liability at launch and scale: 40% GST on most water/tea/coffee‑based “functional” SKUs vs 5% on milk/mylk/fruit‑pulp beverages.

• Stigmatization by category nameplates: Grouped with “sin/luxury goods” in media/retail narratives, undermining health positioning

• Shelf competition: A cheaper 5% cohort (milk/mylk/juice drinks) wins price wars and promos; carbonated fruit drinks also sit at 40%, but legacy colas can better absorb costs and optimize credits

The move leaves big colas largely unscathed on incidence but strengthens them via broader ITC and simpler compliance, while homegrown better-for-you brands face higher prices, stigma, and tougher shelf competition. Without nutrition-based thresholds or clear carve-outs (e.g., sugar-free, probiotic), the policy risks penalising innovation and nudging consumers away from genuinely healthier choices.