Finance Minister Nirmala Sitharaman’s clarification on why salted popcorn is taxed at 12 per cent but caramel popcorn at 18 per cent reminds me of a story from Australia. There too, the idea of GST was debated for over three decades before its introduction.

The proposal for a GST was revived in the 1990 by Liberal Party’s leader John Hewson.

In a television interview on the subject, journalist Mike Willessee asked him to explain the arithmetic of how the price of a birthday cake would be impacted by the proposed GST: “You tell us in what you’ve published that the cost of cake goes down, the cost of confectionery goes up, there’s icing and maybe ice-cream, and then there’s candles on top of it.”

In response, Hewson could only say, “To give you an accurate answer, I need to know exactly what type of cake to give a detailed answer”, prompting Willesee to retort, “If the answer to a birthday cake is so complex — you do have an overall problem with the GST, don’t you?” GST in Australia had to wait till 2000 to be finally implemented.

Popcorn controversy

The FM clarified that salted popcorn is taxed at 5 per cent, but caramelised popcorn comes with added sugar and attracts 18 per cent tax like all products with added sugar.

So, there are now three rates that apply to popcorns: 5 per cent for ready-to-eat salted popcorn when it is not labelled and packaged and 12 per cent if prepackaged; the moment sugar is added to caramelise it, then the popcorn ceases to be popcorn but becomes a “sugar confectionery” to attract 18 per cent GST.

But even products with added sugars are not taxed uniformly.

Different rates

For example, while lassis attract no GST, traditional sweets like rasgulla or barfi attract 5 per cent GST, fruity sugary drinks like Maaza attract 12 per cent rate, while Coke or Pepsi attracts the highest rate of 28 per cent; the same that applies to sin goods like pan masala, tobacco or luxury goods, which also attract an additional 12 per cent GST compensation cess to compensate the States for loss of their own revenues when they agreed to implement the GST.

GST is far from the simple, single-rate, unified law it was supposed to be, covering all commodities in the country and making India a single-tax common market.

Classification confusion

Multiple rates for a single or similar products invariably lead to classification problems as dealers and producers always tend to put the good in a lower tax slab, and it often leads bizarre consequences.

Thus, while buns and cream when sold separately attract only 5 per cent GST, buns with cream attract 18 per cent GST. Classification anomalies often lead to intense lobbying, besides avoidable litigation, thereby increasing the compliance costs for tax administration.

In the recently concluded 55th GST Council meeting, it was widely expected that the apex indirect tax body would offer the much-needed relief on life and health insurance premiums.

A Group of Ministers constituted for the purpose had recommended lowering the GST rate from existing 18 per cent to 5 per cent on life and health insurance premiums, while completely exempting senior citizens.

But apparently the Council had other pressing priorities, like raising taxes on used cars, exempting gene therapy and clarifying tax treatments for popcorn, pepper and gift vouchers, and decided to defer a decision on this matter.

Caramelization, by that way, is a process that occurs when sugar is heated to a high temperature, causing it to break down to change its colour and flavour. Let the issue not go this far.

The writer, a Professor at Arun Jaitley National Institute of Financial Management, is a co-author of GST and Its Aftermath: is Consumer the King?