Every Bite Counts: GST Turns Flavor Into a Tax Event

Concerns abound over how innovation in food is being penalized via higher tax slabs

- MAYANK MOHANKA

A pinch of turmeric in milk or a sprinkle of caramel on popcorn may seem like simple indulgences. But under India's goods and services tax (GST) system, the "value additions" invite a much higher tax rate. As food entrepreneurs innovate and package convenience into every bite, tax authorities seem equally inventive—serving up increasingly steep GST slabs in return.

One of the core objectives behind replacing India's complex Excise and VAT regime with GST from 1 July 2017 was to eliminate the cascading effect of taxes on prices. This was largely achieved through the unification of various indirect taxes and the input tax credit (ITC) system, which allows businesses to claim credit on taxes paid for inputs—barring a few exceptions.

Yet, one persistent pain point under GST continues to plague all stakeholders—authorities, businesses, appellate bodies, and end consumers alike: the classification of goods and services.

India's GST framework includes five major slab rates—0%, 5%, 12%, 18%, and 28%. It relies on the globally accepted Harmonised System of Nomenclature (HSN) to classify goods. The HSN is considered a scientific and exhaustive classification model. However, in India—where cooking styles, ingredients, preservation techniques and seasoning vary widely—the HSN often falls short.