Just a week before we bid goodbye to 2024, the government announced its double whammy on taxes. Perhaps that was the most convenient time for the powers that be. People generally wait for great offers and discounts with year-end sales. However, the government had a different plan this time.

It all started with popcorn. Yes, that all-time favourite snack, which we used to buy from the street vendors for Rs 10, had become a matter of concern for the GST council. Finally, a clarification was issued. Ready-to-eat popcorn containing salt and spices will be taxed 5%, while pre-packaged and labelled salt/spicy popcorn will attract 12% GST. On the other hand, caramelised popcorn or any other popcorn with sugar will attract 18% GST.

That's how popcorn will be treated. As if more than Rs 300 for a few grams of popcorn – the price we generally pay if we dare to eat popcorn while watching a movie in cinemas -- was not enough. Well, this is how most of the items of daily use are treated when it comes to GST.

Be that as it may, popcorn assuredly became viral on various social media platforms with an unpredicted flood of memes. The debate gained so much attention that the finance minister had to speak on the matter. "Salted, plain popcorn is being sold as namkeen in certain states. Caramelised popcorn, however, contains added sugar, which alters its classification and applicable tax rate," she said, emphasising that the issue stems from different classifications of the product rather than the imposition of new tax.

Now, if this clarification is extended to milk, one would still not be able to understand why differential rates are being imposed. Fresh milk is exempt from GST. But if it contains artificial sugar or other sweetening agents, including milk powder or milk food for babies, it is taxed at 5%. However, condensed milk is taxed at 18%. Now, how is 18% GST justifiable? Condensed milk is nothing but sweetened thick milk, which essentially contains sugar and milk solids.

Similar rules apply to yoghurt. Fresh curd, lassi, and buttermilk are exempt from GST, while 5% GST is levied on yoghurt, kefir, and other fermented or acidified milk, regardless of whether it contains added sugar or flavouring agents or added fruit, nuts, or cocoa.

Over the last several decades, the tax authorities have been faced with several debates even before the GST came into the picture. Classification of various products/goods with different taxes is not new.

For instance, in the 1999 decision of Nestle (India) Ltd. vs. Commissioner of Central Excise, the issue was whether KitKat should be classified as a chocolate or a biscuit for excise duty purposes. Nestlé contended that KitKat is a wafer with a chocolate coating, attracting a lower excise duty.

The tax authorities argued that it should be classified as a chocolate, subject to a higher duty. The Customs, Excise and Gold (Control) Appellate Tribunal (CEGAT) ruled in favour of Nestlé, accepting that KitKat's essential character is that of a wafer biscuit with a chocolate covering, thus classifiable with a lower tax regime.

Similarly, Dabur India filed a petition asking for lower taxation for Dabur Lal Dant Manjan, claiming that it's an ayurvedic powder with medicinal properties. The tax authorities classified it as a tooth powder, attracting a higher tax rate. The case went to the Supreme Court for the final decision, where it was classified as a tooth powder with a higher tax rate.
The post-GST era has been no different. The most infamous is the Roti vs. Parantha debate. Yes, rotis and paranthas, which many people in our country still struggle to get access to, were a matter of discussion for taxes! After a long 20-month discussion, it was finally decided that rotis would be taxed at 5% while packed paranthas at 18%!

Simply put, be it sales tax, excise, value-added tax, or GST, the nature of tax disputes has remained the same. The main idea of introducing GST was to simplify the taxation system by absorbing the majority of indirect taxes like excise, octroi, etc., into one tax. However, this has yet to be achieved.

The GST Council has been unable to simplify the GST entirely in line with the popular tagline "One Nation, One Tax" or abolish excise duty, etc. It has remained complicated, making it difficult for both the business fraternity and the common person to comprehend and navigate indirect taxes.

Globally, India has the highest GST rate of 28%. Even the rate of 18% is comparable with the highest GST rates found anywhere. And if we include various kinds of cess and other charges, the actual rates would be much higher. Looking at other developed nations, most of them have one uniform tax rate on most goods and services. For instance, Canada and the UAE have a GST rate of 5%, Singapore has 9%, and so is the case with many other countries. On the contrary, India has five tax rates – 0%, 5%, 12%, 18% and 28%.

Besides, various goods and services are classified under different heads with minor variations but different tax rates, adding to their complexity. And amid these cascading taxes, the common man, who has limited say, suffers the most. As taxes increase, purchasing power reduces, as more money has to be shelled out to buy the same items/products that were available at a lesser price.

The latest household Consumption Expenditure Survey reveals that the share of expenses incurred on food in rural households went up by 47.07% in 2023-24 from 46.38% in 2022-23, while that for urban households inched higher to 39.68% in 2023-24 from 39.17% in the previous year. This can only be attributed to higher food prices.

In fact, a lot of prices, be that of cereals, vegetables, or fruits, whether seasonal or not, have shot up considerably. There was a time when vegetables like cauliflower, fresh peas, etc., were available at less than Rs 30 per kilogramme on average. Now, we have to shell out more than double the price. Green peas are, in fact, available at Rs 100 per kg at the time of writing this piece. Over the last decade, there has not been any considerable increase in income levels to offset this price increase.
The average monthly consumption expenditure per person, including food and non-food items, in rural areas rose to Rs 4,122 in 2023-24, marking a 9.3 per cent increase from Rs 3,773 in 2022-23. Interestingly, this growth in rural spending over the past year outpaced urban areas, where the average monthly consumption expenditure per person increased to Rs 6,996 in 2023-24 from Rs 6,459 in 2022-23. This suggests that rural India is spending more while the urban populations appear to be reducing their consumption.

A deeper analysis of the data reveals that the top 5% of rural and urban populations experienced declining consumption spending during 2023-24. In contrast, all other segments, including the bottom 5%, saw an increase in their spending levels.

It can be construed that the bottom 5% had to shell out more money for similar goods or services while the top 5% had cut their expenditure owing to inflation, increased taxes, etc. It is a proven fact that an increase in prices due to high taxes deters several buyers, thereby reducing sales and leading to low production and consequent job losses for poor and middle-income people. In other words, higher taxes are counter-productive. The government might aim for higher tax collection, but it might lead to lower production and an increased unemployment rate.

Our taxation system is designed to encourage crony capitalism and discourage small businesses. The complex array of tariffs significantly increases compliance costs for small businesses. Besides, GST rates often seem to be determined and altered without clear rationale. For example, cement is taxed at 28% GST, increasing construction costs considerably and rendering housing unaffordable! Besides, it does not fall into the common logic. The highest rate was designed for luxury items or harmful products, while cement does not fall in either of these categories.

It is high time that the government lowered GST rates and implemented a more uniform tariff structure in line with global standards to increase productivity, sustain growth, and achieve Viksit Bharat in the true sense.