One of the hardest reforms to pass in the past decade was the introduction of a national GST, which came into effect in 2017. The GST replaced a plethora of various central and state indirect taxes. Apart from the two national houses of Parliament, each state assembly had to pass the GST bill. The entire taxation system of millions of businesses had to be changed. Online systems had to be created. The division of revenues between the Centre and the states had to be figured out. Opposition criticism had to be managed. Public opinion needed to be won. It was a slow, arduous, and monumental reform for a country as vast and diverse as India. That is probably why it counts as one of the major achievements of the BJP-led government. The primary aim of GST: a uniform, simplified, hassle-free indirect tax regime.
And yet, only last week, the Internet was abuzz with a meme fest about the GST on caramelized popcorn. It turns out that plain or salted popcorn attracts a 5% GST, but caramelized popcorn is taxed at 18%. The reason? Snacks with sugar attract 18% GST, while savory snacks or namkeen attract 5%. Since caramelized popcorn is sweet, you have to pay more taxes. None other than the finance minister of the nation had to clarify this in a press conference. A meme fest followed.
A few months ago, a restaurant chain owner from South India mentioned how buns attract a lower tax, cream attracts a lower tax, but if the cream is applied to a bun, the combination is taxed higher. As a result, his customers wanted the cream and bun separately. This was said in half-jest, but it reflects the reality. The GST reform, undertaken with the primary objective of simplifying things, is only becoming more complex over time, defeating the very purpose for which it was created.
The root cause of this issue lies in the mindset of policymakers, who cannot let go of their desire to control everything, impose their own morality into taxation, create ‘clever’ and ‘gotcha’ policies to extract every drop of extra tax revenue, and their inability to see the overarching purpose behind GST: creating simplicity. As a result, a beautiful reform achieved with great difficulty in 2017 is becoming more complex year after year. One must realize that a complicated GST with multiple tax slabs, cesses, and arbitrary powers in the hands of policymakers is as good as having no GST reform at all.
At the time of its introduction, GST had four slabs: 5%, 12%, 18%, and 28%. Some items were GST-exempt, effectively adding a 0% slab. Certain items, such as fuel, were kept outside GST, with even higher tax rates, creating an additional slab. Thus, we began with six different GST rates. Over time, various cesses were added to certain products (like luxury cars), meaning these six slabs could be further manipulated to create whatever GST rate policymakers wanted. The idea of starting with multiple slabs was to ease into the reform from an already complicated regime. However, as we approach 2025, we should have simplified GST further, reducing it to no more than two slabs and eliminating cesses entirely. Only then can the true benefits of GST reform be realized.
Meanwhile, we are stuck debating sugary versus salted snacks and their tax rates. As a scientific aside, even salted snacks like namkeen are broken down by the body into sugars during digestion. Should the GST council then impose taxes based on the post-digestion composition of snacks?
Popcorn and cream buns aren’t the only oddly taxed items in India. Manual brooms have 0% GST, while vacuum cleaners have 28%. Cheaper footwear (under ₹1,000) is taxed at 5%, while more expensive footwear is taxed at 18%. Restaurants with air conditioning are taxed more than non-air-conditioned ones. Many of these policies stem from an outdated 1980s mindset that believes:
- Anything nice is bad (so it should be taxed more).
- Anything fun, pleasurable, or comfortable is bad (so it should be taxed more).
- Anything of better quality or used by affluent people is bad (so it should be taxed more).
This mindset is pervasive, particularly among bureaucrats. How dare you sit in air conditioning, eat sweet popcorn, or wear high-quality shoes? Pay more. Ironically, GST being a percentage-based tax already ensures that higher-priced items incur higher tax payments. Yet, this mentality of equating anything nice, fun, pleasurable, or modern with sin seeps into how we set taxes. “Simple living, high thinking” – you’ll often hear uncles say this in neighborhood parks. But do people realize that simple living means India’s GDP will shrink if consumption is reduced to the bare minimum? That we will never become a developed or rich country if we don’t embrace quality and modern comforts? When will we learn this? In 2125?
The upcoming budget in early 2025 is an excellent opportunity to initiate another round of GST reforms—simplifying tax slabs and ensuring that more than 98% of items fall within one or two slabs. We also need to shed the “air conditioning is bad” and “anything good is bad” mentality. We are no longer the India of the 1980s. We are the India of the 2020s, aiming for high economic growth, high consumption, and, one day, air conditioning for all citizens.
Once we fix this mentality, the next step will be to outline and communicate GST policies that are simple enough for a fifth-grader to understand. Simplicity is key. Remember, it’s not that simple to be simple. This is especially true of Indian bureaucracy, where complexity is often equated with intelligence. Care must be taken to keep policies, rates, and classifications simple and to communicate them in the simplest terms possible.
We undertook a massive reform on paper, but due to an outdated mindset, we have been unable to realize its full benefits. Let’s hope this budget brings a new vision for GST, where it truly becomes what it was meant to be—a Good and Simple Tax.