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The 55th meeting of the Goods and Services Tax #GST Council on December 21 sparked a debate on the complex nature of India's GST regime stemming from an explanation on the treatment of taxation on popcorn that while a salted version of the snack, if packaged, attracts a tax of 12%, the addition of caramel pushes up the rate to 18%.

This led to a fiery discussion on social media on how knotty the indirect tax regime, rolled out in 2017, can be.

India’s GST has four non-zero slabs—5, 12, 18 and 28 percent. There are also special rates for a handful of products such as a levy of 3 percent on gold.

Some items are outside the ambit of GST as well such as petroleum, crude oil, aviation turbine fuel (ATF), natural gas and alcohol for human consumption. These products continue to function under the erstwhile regime of excise duties and value-added taxes.

But this debate isn’t new. Not too long ago, the difference in tax treatment under GST between parathas and rotis had run the gauntlet of a legal dispute as the former attracted a higher levy of 18 percent even though both are considered to be Indian flat breads.

#Roti vs #paratha

Back in September 2022, the Gujarat Appellate Authority for Advance Ruling had weighed in on an appeal that packaged, frozen parathas just like frozen, packaged rotis should attract a GST rate of 5 percent given that the principal ingredients used in both items were largely similar.

The appellate body rejected the claim citing that since parathas were not ready to eat out of the packet and required 3-4 minutes of cooking, they were not akin to roti or chapati which took minimal time and effort to be ready for consumption. And, the ruling held, even though both foods were primarily wheat flour items, parathas will therefore attract a higher GST rate of 18 percent.

This was similar to a ruling by the Kerala Authority of Advance Ruling in 2018, which clarified that classic and whole wheat versions of the Malabar parotta will be taxed at 18 percent. However, in April 2024, a judgment by the Kerala High Court overturned this decision terming the product on a par with bread and hence coming under the 5 percent slab.

But in June, a division bench of the high court stayed this order of the single-judge bench, leaving the tax treatment over this product in limbo.

#AddedSugar

On the subject of popcorn, after the GST Council meeting on December 21, Finance Minister Nirmala Sitharaman explained, “Salted, caramelised popcorn is being sold as namkeen (salty, unbranded savouries) in certain states. Caramelised popcorn comes with added sugar, so the treatment of the rate is different from namkeen. Whether it is carbonated a drink or juice, anything with added sugar attracts a different tax rate. Since caramelised popcorn contains added sugar, the tax rate is different.”

Namkeens such as bhujia, mixture and similar edible preparations in ready-for-consumption form sold loose or in unpackaged form are taxed at 5 percent, while in pre-packed and labelled form they fall under the 12 percent bracket.

Sitharaman was referring to food products that are classified as sugar confectionery, which attract a levy of 18 percent, barring a few exceptions. Beverages that have added sugar too fall under this slab. This has seemingly led to a difference in the tax treatment between the salted and caramelised versions of the same snack.

Sugar leads to a difference in how GST is taxed on other food items as well. Take milk, which is exempt from GST in its fresh and pasteurised forms without added sugar or any other sweetener. But milk and cream, concentrated or containing added sugar or other sweetening matter, including skimmed milk powder and milk food for babies, fall under the 5 percent GST slab. Then again, in a condensed form, it is taxed at 12 percent.

In fact, beverages containing milk also attract a higher rate of 12 percent.

While popcorn becomes expensive when sweet rather than salty, the council has made exemptions in similar situations for other products, specifically those considered to be widely consumed by the poor. Puffed, flattened or beaten rice—irrespective of whether it’s coated with sugar or gur or jaggery or whether it is packaged or not—attracts a GST of 5 percent.

Good and simple tax?

At the heart of the furore around popcorn taxes lies the consistent demand for a simpler GST regime.

Back in 2018, the World Bank had pointed out that the number of rates under GST is a critical policy parameter that determines the complexity of the indirect tax regime as multiple slabs impose additional costs of compliance for businesses as well as the tax administration, and encourages evasion.

The high cost of compliance imposed on businesses because of multiple rates can be a significant, and is often passed on to consumers by way of higher prices, the World Bank had said back then, adding that India has one of the higher number of slabs under GST, and pointing out that as many as 49 nations had opted for a single-levy structure.

To be sure, the government has been toying with the idea of merging the 12 and 18 percent GST rates into a single slab to simplify the regime. In fact, former finance minister Arun Jaitley had even hinted at this measure back in 2017, contingent on revenue collections picking up.

Jaitley had then spoken of pruning the top 28 percent slab to a very thin list of luxury and sin goods and batted for a move to a two- tier GST system eventually.

Revenue collections under GST have seen an impressive rise with the mop-up nearly doubling to Rs 20.18 lakh in FY24 from Rs 11.77 lakh core in FY19.

The recent debate around the complex nature of taxing a popular snack has brought the focus back on the need to simplify the tax code. Batting for simplicity, the finance ministry’s former chief economic adviser KV Subramanian took to microblogging site X to say that authorities should assess the quantitative impact of a decision before arriving at it.

“What is the rationale for a decision that can max contribute 0.013% to revenue but inconvenience citizens?” Subramanian asked weighing in on the debate around taxing caramel popcorn differently.

TV Mohandas Pai, former CFO at Infosys, went a step further. “This is silly and complex. Will lead to tax terrorism. Citizens are becoming victims of bad policy which will make them hostages to rent seeking officials and create disputes GST needs to be simplified, not this,” Pai said in his post.