The simple popcorn is caught in the middle of a storm by the latest IGST clarification indicating that various types of popcorn will be levied at a different tax rate. The move, apart from infuriating consumers and economists and tripping off a flood of memes on social media, might be hard to execute and trigger controversies on classification, say tax specialists. In its meeting on December 21, the GST Council became clear that popcorn will be subject to three forms of GST rates depending on the spice mix. Therefore, prepared readily consumable popcorn with salt and spices intention attracts 5% GST if sold other than pre-packed and labelled and 12% GST if supplied as pre-packed and labelled. However,r if popcorn is converted into sugar confectionary such as caramel popcorn, it will attract an 18 per cent GST.
“As for the issues for the past, it has been resolved to regularise it on ‘as is where is’ basis. However, there is no question of a new imposition of any tax in this regard and therefore it is only a clarification as some field units were charging different tax rates on the same. Thus, it is clarification that being recommended by the GST Council to solve disputes emerging out of interpretation,” as stated in the press release after the meeting. However, the minister’s clarification is expected, resulting in more confusion because it may be hard to apply to businesses selling salted and sweet popcorn, like the theatres.
“The classification under GST must be as Basic as possible so that there is transparency and fewer chances of litigation,” opined Abhishek Rastogi, Founder of Rastogi Chambers, who actively involved himself in litigating numerous classification issues under GST. In his argument, Rastogi has observed that it is operationally complex and creates room for interpretational disputes when there are multiple rates of the same supply depending on the price, characteristics or other subjective factors. He pointed out that a fragmented classification disrupted the process of GST, which was initially aimed at simplifying aid harmonisation of the tax system. “When there are efficiency gains to be made through differential taxation based on physical characteristics or prices, then this line of thought results in the creation of compliance and litigation costs,” Rastogi continued. It produces complexities whereby taxpayers struggle to identify which of the treatments is appropriate, thus making compliance costly and reducing the ease of doing business.
Bimal Jain, the Founder of A2Z Taxcorp LLP, also affirmed that classification for GST must offer ease of business to use and value to customers beyond legally strict classifications. Specific such items occur under GST, and there are several of them. He pointed out that it will create great confusion, not ease classification disputes, and can lead to more evasion,” he pointed out. Shravan Shetty, Managing Director, Primus Partners also said it will be quite challenging to implement the idea of staggered taxation of popcorn consumption. Our opinion is that such variations, which make rates different create both cost and complication in compliance and reporting. He added that there should be an emphasis on a flat rate structure with single rates for the product groups.
This clarification has made people raise their eyebrows, especially when the GST Council is expected to bring out more rationalisation of GST rates and come out with the idea of simplifying the indirect tax structure. The same is being asked regarding the ability to manifest additional revenues through such a tax difference on an item like popcorn. Other critics include ex-chief economic advisor Krishnamurthy Subramanian, who raised an eyebrow at an 18% GST on caramelised popcorn. “Complexity is a bureaucrat’s delight and citizen’s nightmare,” he said in a post on X.
He also mentioned that by estimation of GlobalData, the popcorn market will be Rs 1,700 crore in 2025. If the number is assumed to be Rs 300 crore, and for popcorn alone, it is 18% GST, then it comes to 0.013 %, which is only 13 paisa of the total estimated GST collection of Rs 22 lakh crore in 2025. How do we decide on an app that can at best earn $0.013% of total revenues but will be costly to citizens and inconvenient? he asked in another tweet on X. Other former CEA Arvind Subramanian also opposed the move and referred to it as a “national calamity”. “This is a national tragedy, violating the spirit of the Good and Simple Tax the GST was meant to be,” he tweeted. The folly is worse because instead of getting it right, at least in simple solutions, we are going the other way, in the direction of more complicated, difficult to enforce and simply irrational. Sad.”
