GST on the hot plate again: Why a parotta is not a roti, a chapatti or a khakhra for that matter when it comes to economy

The simplest way to get rid of such problems is to have fewer and lower GST rates.

Vivek Kaul June 15, 2020 17:19:10 IST
GST on the hot plate again: Why a parotta is not a roti, a chapatti or a khakhra for that matter when it comes to economy

The Goods and Services Tax (GST) is in the news again. And for the wrong reasons.

The Karnataka Bench of the Authority of Advance Ruling (AAR) has clarified that wheat or maida parotta (you might call it a parontha, a parantha or something else for that matter) is not a roti because it needs to be heated for human consumption. Given that, the GST on it should be 18 percent and not 5 percent as is the case with rotis.

In an order running into nine pages, the AAR finally said that a parotta is not khakhra, chapatti or roti. Also, khakhra, chapatti or roti are completely cooked preparations and do not require further processing for human consumption and hence, they are ready to eat food preparations.

On the other hand, a parotta available in the ambient or frozen form with a shelf life of three to seven days required further processing for human consumption. In this case, further processing refers to heating the parotta on a pan or a tawa, before it can be eaten. (Yes, you read that right).

But if it’s a question of heating the parotta before eating it, I wonder why the AAR left the question of heating the readymade rotis (like the readymade parottas) out of the equation. Also, I like my khakhra with a little bit of finely chopped onions and tomatoes on top. And given that the khakhra that I buy needs to be further processed before I can eat it. So, shouldn’t that attract a higher GST rate as well? (Okay, in case you didn’t get it, that was a joke).

The question is, why was this classification necessary? The parotta was not categorised as a product under the goods and services tax. If it had been categorised as something similar to roti/chapatti/khakhra and did not require any further processing for human consumption, the GST on it would have worked out to 5%. But given that it did not fulfil the required conditions, the GST on it will be 18 percent.

But is that the real problem here? Clearly not.

That some part of the government spent time in the 21st century deciding that a parotta is not a roti or a chapatti or khakhra for that matter and putting out a nine-page order on it, actually tells us how screwed up the Goods and Services Tax, actually is. (Oh, and when will government departments get over with their habit of uploading a scanned PDF and not a simple PDF?).

This requirement to clearly categorise products comes from the fact that the GST has many different rates (0 percent, 0.25 percent, 3 percent, 5 percent, 12 percent, 18 percent, 28 percent and higher depending on different kinds of cess (a tax on a tax)). This keeps creating problems because everything cannot be put on paper and taxes and common sense don’t always go together.

A few years back, the  Congress leader Veerappa Moily had asked: “For example, is Kitkat a chocolate or a biscuit? Is coconut oil considered as hair oil or cooking oil?” Interestingly, chocolates and other food preparation containing cocoa, attract a GST of 18%. But this does not apply to the humble Bengali sweet, the Sandesh, even if it contains chocolate.

In fact, the importance of this issue can be seen from the fact that the Central Board of Indirect Taxes and Excise, needed to issue a separate FAQ in order to address it.  As the FAQ goes: “What is the GST rate on chocolate ‘Sandesh’ Bengali misti? The answer is, “Sandesh, whether or not containing chocolate, attract 5% GST”.

This tells us that all across India, chocolate is a luxury, and given that, it is taxed at a significantly higher rate. Nevertheless, in Bengal, it is a necessity. This is not to complain again the Sandesh, but just to show how ridiculous the regulations actually are.

All this brings me back to my MBA days where we had discussed a very interesting sales tax case on whether coconut oil sold as hair oil could be categorised as edible oil for sales tax purposes. The contention of the company selling the hair oil was that the oil that it sold was pure coconut oil and that it was edible oil. This arose primarily because coconut oil sold as hair oil attracted a higher rate of sales tax in comparison to edible coconut oil.

The company had initially won the case, which was subsequently challenged by the state government. I really don’t know what finally came of it. But that’s not the point here. The point is that even two decades later, we are still dealing with the same problems in our governance system.

The roti versus parotta is the coconut edible oil versus coconut hair oil of 2020. Indeed, that’s very sad.

The simplest way to get rid of such problems is to have fewer and lower GST rates. If that happens all these categorisation issues won’t arise. But it would make the bureaucrats and the overall system dealing with the GST, less arbitrary. In any system which is less arbitrary, the chances of corruption come down dramatically. And that being the case, I think I have already answered why such a system won’t come into being.

Also, the more complicated any system is, the more employment it creates on the face of it. It creates direct employment in the form of bureaucrats who supposedly manage the system and it creates indirect employment in the form of agents/brokers etc., who help the common folk navigate the system. And what is more important in a country like India, cracking down on some random petty corruption or creating employment? Do I even need to answer that?
On a more serious note, a simple tax system encourages economic activity, which creates jobs. Given that, these jobs are never created we don’t count them as jobs lost. Indeed, that’s the unseen effect of this. The vice-versa is not true.

Interestingly, The Hindu reports, that in Mumbai the parottas have been categorised to be in the 5 percent GST category unlike the 18% category in Karanataka. So, dear reader, the next time you are travelling from Mumbai to Bengaluru, do take across a few packets of parottas for the family.

The writer is the author of Bad Money.

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