GST Council's New Popcorn Tax Spark Criticism Over Complexity

The GST Council’s recent decision to apply varying tax rates to different types of popcorn, dubbed as ‘Popcorn Tax’ on social media, has raised concerns among industry experts. Critics argue that the move adds unnecessary complexity to the GST system, undermining the ease of doing business.

The 55th Goods and Services Tax (GST), which was chaired by Union Minister for Finance & Corporate Affairs Nirmala Sitharaman in Jaisalmer, Rajasthan, determined that non-branded popcorn mixed with salt and spices would be subject to a 5% GST, pre-packaged and branded popcorn would be subject to a 12% GST, and caramel popcorn, classified as sugar confectionery, would be subject to an 18% GST.

On 21st December, the Ministry of Finance, in a release, clarified that “ready-to-eat popcorn which is mixed with salt and spices are classifiable under HS 2106 90 99 and attracts 5 per cent GST if supplied as other than pre-packaged and labelled and 12 per cent GST if supplied as pre-packaged and labelled. However, when popcorn is mixed with sugar, thereby changing its character to sugar confectionery (e.g., caramel popcorn), it would be classifiable under HS 1704 90 90 and attract 18 per cent GST”.

It added, “There is no new imposition of any tax in this regard and is merely a clarification as certain field units were demanding different tax rates. Therefore, clarification is being recommended by the GST Council to settle the disputes arising out of interpretation.”

Reacting to this, Sagar A. Naik Kurade, Managing Director, Suman Food Consultants, said that the 55th GST Council Meeting’s recommendation to impose three different tax rates on popcorn undermines the very foundation of GST, which was designed to promote ease of doing business, compliance, and a simplified tax structure.

“The rise of the Indian economy lies in ease of regulations. What should be a simple structure for Goods and Services Tax (GST) becomes complicated when multiple categories of Taxes become applicable on the SAME product,” Kurade said.

Within the Food sector, the GST rates in India vary depending upon the product, its packaging, processing levels, branding, and sometimes even the temperature levels the food product is kept under. “Such complexities, in turn, enable interpretations from various stakeholders within the industry and complicate the very idea of a simple unified tax structure throughout the country,” he added.

He shared some interesting examples below:

Frozen Roti has a 12% applicable GST in India, while Frozen Paratha has an 18% applicable GST Tax.
Popcorn has 5% GST Taxes if sold unpacked, 12% GST if sold packed and 18% GST if Caremelised.
Fresh Milk attracts 0% GST, but when processed to extend shelf life (UHT), it attracts 5% GST. When processed and sold as flavoured Milk, it attracts a 12% GST rate, and when processed and sold as Ice cream, it attracts an 18% GST rate.
Food served in a restaurant that is made in the same kitchen has 5% applicable GST if served in a non-AC room and 18% applicable GST if served in an air conditioning room.

Traditional snacks have 0% GST if sold loose, while packaged snacks are taxed at 12% to 18%, depending on the ingredients and branding.

Such differentiation, in fact, encourages consumers to buy open and unpacked food products rather than packed and safe food products. Importantly, if “Ease of Doing Business” in India is the goal, then such complexities within a simple tax structure should be avoided, Kurade argued.

India has worked hard to liberalise and ensure that regulations do not hamper its growth. Therefore, India looks forward to its leadership to ensure that the bureaucracy, which sometimes derives its power from complicating simple issues, is reminded to keep things simple. It would surely lead to ease of doing business.