Taxing Popcorn in India: GST Controversy

  • December 25, 2024
  • Posted by: OptimizeIAS Team
  • Category: DPN Topics
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Taxing Popcorn in India: GST Controversy

Sub: Eco

Sec: Fiscal Policy

Context:

The GST Council introduced differential tax rates on popcorn based on its content:

  • Non-branded, salted/spiced popcorn: 5% GST
  • Pre-packaged and branded popcorn: 12% GST
  • Caramel popcorn (sugar confectionery): 18% GST

Rationale: Finance Minister Sitharaman explained that products with added sugar are taxed at higher rates.

Criticism

  • Complexity:
    • Taxing popcorn based on content and branding adds unnecessary complexity to the GST system.
    • Critics argue it undermines the original intent of GST.
  • Minimal Revenue Impact:
    • Former Chief Economic Advisers questioned its negligible revenue contribution versus the inconvenience caused.
  • Enforcement Challenges:
    • Classifying popcorn varieties (e.g., salted caramel popcorn) complicates compliance and enforcement.
  • Media Backlash:
    • Criticism highlights the absurdity of having three tax slabs for popcorn.

Goods and Services Tax (GST): 

The 101st Constitutional Amendment Act (2017) introduced GST, a comprehensive indirect tax levied on the supply of goods and services.

Key Features

  • One Nation, One Tax:
    • Replaces multiple indirect taxes (e.g., excise duty, VAT, service tax) with a single framework.
  • Dual Structure:
    • Central GST (CGST): Levied by the Central Government.
    • State GST (SGST): Levied by State Governments.
    • Integrated GST (IGST): Applicable to inter-state transactions, collected by the Centre and apportioned to states.
  • Destination-based Tax:
    • GST is levied at the place of consumption rather than the place of origin.
  • Tax Slabs:
    • Ranges from 0%, 5%, 12%, 18%, and 28% depending on the nature of goods/services.
  • Governance:
    • GST Council: Apex decision-making body.
    • Goods and Services Tax Network (GSTN): Provides IT infrastructure for GST operations.

Key Achievements

  • Increased Taxpayer Base:
  • Elimination of Cascading Effect: Input tax credit ensures taxes are levied only on value addition.
  • Simplified Compliance for Small Taxpayers: Initiatives like the Composition Scheme reduce tax burdens and compliance hassles.
  • Streamlined Transactions: Introduction of e-way bills facilitates inter-state and intra-state commerce.

Challenges faced so far:

  • Multiplicity of Tax Slabs:
    • Complexity in classification (e.g., popcorn taxation controversies).
  • Excluded Products:
    • Certain products like alcohol and petroleum remain outside GST’s purview.
  • Reduced Taxation Power for States:
    • States face constraints in levying their own indirect taxes.
  • Revenue Shortfalls for States:
    • Delayed compensation for states’ revenue losses hampers fiscal planning.
economy Taxing Popcorn in India: GST Controversy