TIOL - COB( WEB) - 953
JANUARY 2, 2025

By Shailendra Kumar, Founder Editor

THE 55th GST Council meeting succeeded in fostering a consensus to levy a trifecta of tax rates on popcorn but the GST regime itself is not having a popcorn-time, in the recent years! All the capital of goodwill, trust and equity earned in the past to harmoniously perpetuate the new indirect tax system in the economy is increasingly being frittered away! The initial pace of taxpayers' acceptance imbued with trust in the fairness, if not equity, of the GST system has lost momentum as well as the direction, tut-tut! The forefathers of the GST had pictured this tax system as the one breaking free from the DNA of the erstwhile reigns and evolving its own genome sequences based on a symphony of transparency, rationality, simplification, non-technicality, fairness and equity. However, the present course of discourse at the Council's meetings influences the public perception that the young crops of neophyte officials and State Ministers are quite often prone to licking a dab of taxing techniques, largely prevalent in the old tax systems, and which were responsible for making the erstwhile regimes dysfunctional and vile!

How? Let's analyse the internationally-reported popcorn 'misadventure' if I may call it. Even a leading Chinese Daily has taken a pop at the futility and extravagance of carving out three-tiered tax rates on a low-revenue-potential product like popcorn. The levy, painstakingly elaborated by the Union Finance Minister at her media briefing session in Jaisalmer, became a rich fodder for ladling out memes on the aphorism machine - that is our social media. Although it was a collective decision but the 'emblem' of the Council was sniffily subjected to excessive mimicries and 'unlaughable' videos pixilated with gibberish. Many influencers went to the extent of cajoling Indians to leave the country as India has embraced overindulgent regulations and asphyxiatingly high taxation. Anyway, let's saunter to the complexity-multiplier old taxing technique which is to levy tax not on a particular good but on its multiple variants with varied rates! That is why the 'popper' spent its valuable time discussing a levy not only on popcorn but also its variants like salted, pre-packaged, branded, caramelised and flavoured. Holy GST! It was pure corn! By resorting to technicalities, the Council ended up eating corn on the cob and provided three rates which made millions of eyes pop out!

A closer look at this unsavoury episode pops up many missteps which might have led to this comic scenario! Having received a classification query from the State of Uttar Pradesh, the eyeballs of trigger-happy Fitment Committee members might have popped in disbelief - how come their predecessors missed taxing such a widespread pop practice of supplying popcorn in multiple gourmet flavours. So far, so good! The first misstep: Before putting it on the agenda, the Fitment Committee officials should have sweated out on 'Impact Analysis' to quantify - how much extra revenue would be realised from making it multiple-layered, and what would be its socio-economic impact. Secondly, whether their decision would further complicate compliance. But it seems that no such assessment was, perhaps, done based on the belief that every weed in the desert is indeed a 'flower'!

So far as my memory goes, it used to be a normal practice when the GST was at its nascent stage. I am not sure whether such a data-driven tool is still being used. Nonetheless, let's presume that such a study was done by the Fitment Committee. So, what is the size of the popcorn industry enveloping all its variants - the Indian market accounts for 6% of the global market-size of USD 32 billion in 2024. This makes it about USD two billion. About 60% of the Indian market is into unorganised sector. So, for higher rates, only 40% of market is available. Given the fact that there were already 5% tax on loose or unpackaged and 12% on branded ones, all other variants should have been clubbed with 12% slab itself rather than creating one more layer of 18% for the flavoured ones. Whatever extra has to come, that would come from this flavoured ones and that is indeed going to be a piddly sum for the Exchequers. Was this revenue really worth the loss of goodwill and bouts of global sneering? The fact that it would generate such a trifling sum, the Fitment Committee apparently overlooked the impact analysis if such an exercise was 'reflexively' undertaken!

Second misstep: Resorting to legal metrology entailing technical classification like labelled or packaged was, in the hindsight, indeed a costly mistake to make - right from 1st July, 2017. It has prevented the Council from simplifying classification of goods, and often nudges it to go for multiple rates for the same good. This blaringly defies the spirit of Prime Minister Modi's call for 'One Nation, One Market, One Tax' trope! Complexity tends to drive taxpayers away from higher rates which leads to manipulation in return-filing and tax payments. My timely happiness-booster advice to the Council will be to let there be a new GoM or a Committee of officials and task them to undertake a study of revenue implications if the GST is to move away from legal metrology-driven classification era. Its findings will quantify the risk which the Council members may decide as worth taking or worth overlooking. The GST is, now, about to be eight, and there is enough data with the GSTN which may enable more scientific studies - a vital input for the GoM on rate rationalisation. Let's not jones for gazing down from the glass tower and go for some empirically verified and scientific approach!

As we wind down 2024 and look ahead - What can have a multiplier effect on the confidence of GST taxpayers is the healthy practice of sharing revenue implication of each decision taken by the Council. Transparency in the working of the Council along with the sharing of revenue and socio-economic impact analysis, would go a long way in winning back the trust of the nation. In the name of poor and have-nots, many exemptions and lower rates are decided at the cost of infecting the original GST design with serious distortions but no data is shared, nor any study is made public or even quoted as an internal study. This tends to carve out the impressions in the mind of consumers that the tax burden of certain goods is being upped only to favour certain baskets of goods or their manufacturers or services. Opacity and lack of scientific approach also countervail against the faith of taxpayers in the tax system. Even if the Council decides not to share their internal studies, merely sharing the revenue projections would make the exercise worthwhile. And it should be done at every instance the Council changes the tax rate. Secondly, the rationale behind such a decision would snarl the media from crass speculation and kite-flying, which was profusely referred to by the Union Finance Minister in her media briefing.

As per my understanding, what may have nudged the members of the Council to overlook some of the primary questions like what extra revenue may come by taxing flavoured popcorn, is their own financial crisis! Scores of states are in dire straits because of ill-management of their finances either by their predecessors or themselves. Because of the unhealthy freebies competition during the polls a la the recent state polls and also the forthcoming polls, egregious appeasement of the voters has become their winning strategies. Such a trend has severely walloped the revenue kitties of the States. So, when a proposal pops up on the Agenda to garner extra revenue, they take blindsided approach and tend to unanimously approve it irrespective of the 'fecundity prospects'. Because of their persistent fiscal deficits, the States have become blind to the GST burden on the consumers. And this is where I clearly see a vicious-cycle-in-the-making. The regular bouts of freebies would always put them to fiscal discomfiture, which would, in turn, prompt them to levy more taxes and that would never let the demon of inflation recede - no matter, whatever monetary policy measures are taken by the MPC.

Weirdly, the Centre appears to be letting the States drive the GST agenda. The Centre is also not realising that the States do not pay the political cost if chaos rains down on the economy. More importantly, their fiscal wisdom is also debatable! In a nutshell, the burden of indirect taxation has tanked the economy, and it is hurting its growth and also the cost of living for the common man in multiple ways. No matter what freebies political parties may offer but as long as the prices of daily-use goods do not become affordable, the economy would remain overheated and voters would also remain too torrid to come within the realm of predictability for the pollsters!

Another noticeable difference I tend to see is the apathetic torpor in the approach of some State representatives vis-a-vis their predecessors. It appears that the State FMs have been leaving all agenda items to their officials and habitually hinge on last-minute briefings. A case of local politics pre-occupying their mind, perhaps! As a result, the deliberations at the Council are generally deprived of political sagacity and macro-economic vision! We used to have Mr Amit Mitra, Dr P Thiaga Rajan, Dr Thomas Issac, Mr Hasib Drabu, late Mr Sushil Modi, and many others who used to insist on surgical debate on each proposal and also concur with the Centre but only after analysing the revenue implications as well as how much taxpayers would be burdened. They used to oppose many proposals but after debates, they used to agree as well. That does not seem to be the case now a la the ATF issue! What has become a prime mover for the most States is just extra revenue! If such is going to be the zeitgeist, what is cooking at the GoM on Compensation Cess is not difficult to prognosticate. Their recommendation is going to be a fait accompli - to retain the cess by a different nomenclature! Oops! And such cuddly recommendations would further muddy the turbid landscape of GST regime! Perhaps, time for PM Modi to coin a new slogan for the GST bureaucracy at the Centre as well as the States is - 'One Nation, One Commodity, One Tax'! This would certainly halve the classification disputes resulting in what most taxpayers often dub it as 'tax terrorism'! Ciao!