The GST debate, popcorn, parathas, and more

December 25, 2024 Finance Talk Valli Sarvani

India’s Goods and Services Tax (GST) Council’s recent deliberation on December 21 reignited debates about the complexities of the indirect tax system.

The seemingly trivial issue of taxing salted versus caramelised popcorn differently—12% for salted and 18% for caramelised—has sparked widespread discourse on social media. It exposed the knotty details of the GST regime.

India’s GST system, launched in 2017, features four non-zero slabs—5%, 12%, 18%, and 28%—in addition to special rates for specific goods like gold (3%).

Certain items such as petroleum, alcohol, and natural gas remain outside GST’s purview, continuing under the older excise and VAT structures.

The multi-tiered framework has led to peculiar tax classifications, such as the higher levy on caramelised popcorn due to added sugar.

Finance Minister Nirmala Sitharaman clarified that food items with added sugar generally attract higher tax rates under GST.

This principle has been applied consistently across categories like beverages, condensed milk, and certain confectioneries.

The popcorn conundrum echoes past disputes, notably the roti vs. paratha case.

In 2022, the Gujarat Appellate Authority for Advance Ruling held that frozen parathas should attract an 18% GST, unlike rotis taxed at 5%, citing preparation differences.

Similarly, in Kerala, Malabar parotta faced an 18% tax rate until the Kerala High Court briefly ruled it equivalent to bread (5%) in 2024, only for the order to be stayed by a division bench.

These examples highlight the GST system’s tendency to create disputes over seemingly minor differences, further complicating compliance. Criticism of the GST regime’s complexity is not new.

In 2018, the World Bank flagged India’s multiple tax slabs as a major contributor to administrative costs and compliance burdens.

It urged a move towards a simplified structure. Comparatively, many nations have opted for single-rate GST models.

Former Finance Minister Arun Jaitley had envisioned merging the 12% and 18% slabs and narrowing the 28% slab to luxury items.

Although GST revenues have nearly doubled from ₹11.77 lakh crore in FY19 to ₹20.18 lakh crore in FY24, a simpler tax structure remains elusive. Recent debates underscore public frustration.

Former Chief Economic Adviser KV Subramanian questioned the rationale behind decisions that yield negligible revenue while inconveniencing citizens.

Similarly, TV Mohandas Pai, former CFO of Infosys, criticized the system’s complexity, warning against fostering “tax terrorism” and disputes.

The popcorn tax debate has rekindled focus on the pressing need for a simpler GST system.

Consolidating rates, reducing ambiguities, and aligning tax classifications could not only ease compliance but also foster public trust in the taxation framework.

The challenge lies in balancing revenue needs with policy clarity, a move that could truly make GST the Good and Simple Tax it was intended to be.

Image from Pxhere (Free for commercial use / CC0 Public Domain)

Image Published on February 26, 2017