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Papads are telling us an important story about GST complexity

All goods and services should be brought under GST, barring none. That would mean taxing alcohol, oil products and electricity, too, under GST, as well as real estate.Premium
All goods and services should be brought under GST, barring none. That would mean taxing alcohol, oil products and electricity, too, under GST, as well as real estate.

  • The system of classifying near-identical goods into different classes of goods and taxing them at different levels should be dumped. Most goods should be taxed at a central rate, say 12%. A lower rate should flank this rate, say 6% for essentials and another rate, say, 18% for indulgences

Between state-level benches of the Authority for Advance Rulings (AAR) and the Appellate Authority for Advance Rulings (AAAR), a man who enjoys crunching a disc of spiced dough fried to a mass of crisp blisters oozing spicy flavours and oil is now left with a bitter taste in his mouth. This is because AAR benches/AAAR have ruled the applicable rate of Goods and Services Tax to be 0% and others as 18% on fried papads sold as fryums.

Fryums would not be considered high-brow, whether in the world of culinary connoisseurs or the processed food trade. But fryums have been raising eyebrows and furrowing the foreheads of their small-scale makers and tax authorities, whose job is to make an advance ruling on questions as to the tariff head under which a particular commodity would fall or the applicable rate of tax.

Fryums are modern iterations of the traditional Indian papad, a dough of dal flour, oil, salt and, optionally, spices. The papad has generally been round, although it is often served after being cut up into four quadrants before frying. Fryums can take assorted shapes and have sprinklings of things like cheese or exotic spices like jalapenos.

Some AAR benches have ruled papads to be exempt from GST, and some courts have, reportedly, accepted the argument that papad, by any other name would be as snacky, paving the way, seemingly, for fryums also to be exempt from tax, on par with papad, being classified under an appropriate subhead of the 4-digit harmonised system of nomenclature (HSN) code 1905.

But the Gujarat bench of the AAR ruled that fryums would attract GST at the rate of18%, because it would come under the HSN code 2106, meant to cover “food preparations not elsewhere specified or included (other than roasted gram, sweetmeats, batters, including idli/dosa batter, namkeens, bhujia, mixture, chabena and similar edible preparations in ready-for-consumption form, khakhra, chutney powder, diabetic foods)."

Now, the AAAR has ruled that the AAR was right on the tax rate of 18% but wrong on the classification. It has ruled that fryums would come under Code 1905, all right, but within that major head, under the subclassification 16, not 96, exempt from GST. Those under subclassification 16 of HSN 1905 attract 18% GST.

The problem is not with fryums or papads or the authorities for advance ruling. The problem is with the complex GST our lawmakers and their henchmen in the bureaucracy have wrought. A roti, made of wheat dough, attracts a GST of 5%, a Malabar parotta, also made of wheat dough, attracts a tax of 18%. Idli/dosa batter is taxed at 5%, a ready-to-cook mix of flours bears a tax of 18%. Milk gets away with 5%; flavoured milk is taxed at 12%. Fruit juice is taxed at 12%; carbonated fruit juice is treated as a fizzy, sugared drink and taxed at 28%, with an added cess of 12%.

This complex system of classifying near-identical goods into different classes of goods and taxing them at vastly different levels should be dumped. We need a simpler system. Most goods should be taxed at a central rate, say 12%. A lower rate should flank this rate, say 6% for essentials and another rate, say, 18% for indulgences, such as luxury brands, whose appeal goes up along with their price. All articles of food, whether cooked or uncooked, ready-to-eat or ready-to-gag, should all attract the self-same rate of 6%, with no scope for any classification confusion.

All goods and services should be brought under GST, barring none. That would mean taxing alcohol, oil products and electricity, too, under GST, as well as real estate. Exports should be zero-rated so that the exporter would be re-imbursed all the input taxes on the export as an input tax credit. Low volume producers should be subjected to reverse tax, in which the bigger buyer levies the tax on the purchase, credits it to the government in the buyer’s name and takes input tax credit for it as well. This way, the tax chain would be unbroken, leading to the generation of comprehensive audit trails that can be followed to vastly improve the coverage of taxation and increase collections.

We as a nation do ourselves grave injustice when we waste our energies on the classification of papads and fryums instead of munching on them while raising a toast to our collective success on worthier challenges.

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