The original decision, subsequent clarification and social media blowback sum up the challenge facing GST – designed as a game changer that economically unified the country by collapsing 36 tax jurisdictions. It was meant to be a Good and Simple Tax.
However, gradual bureaucratic capture and a complicit GST Council have progressively diluted the original idea. GST is increasingly looking like the old indirect tax regime it replaced. It is making a mockery of GoI’s stated intention to improve ‘ease of doing business’ – the lack of which is tripping up both foreign and domestic investment.
And, as the popcorn case revealed, the same commodity can be taxed at multiple rates. The latest controversy is a classic case of the GST Council missing the wood for the trees. The entire focus is on raising revenues, ignoring the impact on consumers and businesses.
While Nirmala Sitharaman, as head of GST Council, has become the lightning rod of criticism, the fact is that the onus rests at the collective door of the council. GoI has only a third of the voting rights, the balance is held by state governments.Interestingly, the popcorn saga got a fresh fillip after former CEA and India’s serving executive director at IMF Krishnamurthy Subramanian berated the move on X, arguing that the maths of the decision made no sense. According to his calculations, taxes on popcorn would contribute a mere 0.013% to total GST receipts of ₹22 lakh cr. ‘What is the rationale for a decision that can max contribute 0.013% to revenue but inconvenience citizens?’ he asked, adding for good measure: ‘Complexity is a bureaucrat’s delight and citizen’s nightmare.’Subramanian averred that the GST Council had failed the smell test for any policy decision. Quantitative analysis showed that it failed to meet the objective of maximising GST collections. Whether his maths is exact is not the point. It is his emphasis on the ease of living. Exactly what was argued by former Infosys CFO Mohandas Pai in a related post on X.
In an equally harsh indictment of the GST Council move on popcorn, Pai said, ‘This is silly and complex. Will lead to tax terrorism. Citizens are becoming victims of bad policy which will make them hostages to rent seeking officials and create disputes. GST needs to be simplified. Not this.’
Sadly, the latest controversy is not a one-off. Frequent tinkering with rates of specific commodities is creating absurd situations. For example, last year, the GST Council approved some changes in the rates on food items sold inside a cinema. It created a bizarre outcome: if you purchased your tickets and snacks as a bundle online, GST charged is 18%. It’s 5% if you bought them in the theatre.
More recently, a local businessman in Coimbatore controversially engaged Sitharaman on the challenge of doing business in a regime of multiple and complex rates for commodities. At present there are five tax slabs: 0%, 5%, 12%, 18% and 28%. However, if you include GST cess – imposed on select ‘sin goods’ like pan masala, motor vehicles, etc – then there is another tax slab. Effectively, India’s GST has six tax slabs. Far too many.
Like everything else these days, the matter took an ugly political turn and spiralled into a slugfest, burying the central point: that the existing GST rate structure is past its sell-by date and needs an immediate reset. Failure to make the fix is creating a perception that the idea of GST is flawed. Already, some political segments have dubbed it as the ‘Gabbar Singh Tax’. There is a risk of the baby being thrown out with the bathwater.
This would be a pity though. The idea of ‘One Nation, One Tax’ was realised after both the Centre and states pooled their tax sovereignties. This sacrifice, in turn, enabled a collapsing of tax jurisdictions, subsuming 17 taxes and 13 cesses levied by the Union and state governments and doubling the taxpayer base to 1.4 crore.
The public face-offs on GST point to the flaws in the architecture and implementation, especially overreach on part of the tax sleuths. This is a moment to acknowledge this harsh truth, take a step back and undertake a structural fix.