Weird pizza tax makes the case for GST reform

Most Indians laughed at the memes and went on, but a recent ruling by the Haryana Appellate Authority for Advance Ruling on pizza toppings shows that the Goods and Services Tax – it was enthusiastically hailed as the ‘Good and Simple Tax’ when it was started. In 2016 – has departed from its original stated intention of being nice and easy to use for all.

Khera Trading Company will agree. The Panipat-based foodie maker makes something it calls ‘pizza toppings’. The blend is composed of equal parts mozzarella cheese, milk solids and skimmed milk powder (15% each), 22% of edible oil, and other flavors and additives. Since this pizza looks like a block of cheese and behaves as such when cooked, the company wanted the product, for GST purposes, to be classified under Chapter 0406, and taxed as ‘Cheese’.

It had applied to the Haryana Authority of Advance Ruling – a body set up specifically to clarify such tricky issues for manufacturers – to be taxed at the rate for paneer. The AAR ruled otherwise, after which the matter went to the Appellate Authority, which held that since the product was a fifth vegetable oil, and the process of heating and blending the mozzarella cheese with all the other ingredients, something had definitely happened. Could not have been called “processed cheese”, should be treated as “food preparation not otherwise specified or included”, and taxed at 18%.

So far, so good. Logical too, one can argue. But the decision on “topping pizza” shows just how far Indian babus can go in pursuit of revenue and exercise their almost limitless discretionary powers. Because, with 18% GST on “pizza toppings”, we now have three different tax slabs for not only different parts of the pizza, but also where it is bought or eaten! This is because pizza made, bought and eaten in a restaurant attracts 5% GST. If you order the same pizza to be delivered at home, it is treated as a service and attracts 18% GST. If you say ‘With taxes, I will make my own’ and buy a pizza base, you will pay 12% GST on the base, 18% GST on toppings and 12% GST (rate applicable to meat, offal). , blood and food preparations made from them) the sausages you put on them!

Of course, classification disputes are as old as the taxa itself. We’ve celebrated cases that went into the difference between parrot and chapati, between chappal and sandal, and whether ice cream sold in a parlor differs from ice cream sold in a restaurant (obviously the former is a good choice). and the latter is a service and therefore taxed separately)

In a famous case in the Uttarakhand High Court (Sarva Shree Neeraj Mitthan Bhandar v. Commissioner, Commercial Tax), the Hon’ble Court considered in detail whether samosa was a cooked food or a ready-to-eat preparation like chips or bhujia. , “We have observed that samosa is definitely a cooked food and since it satisfies the requirement of cooked food in the broadest sense, and since the second option is to tax under namkeen which we do not like,” the court said. Petition to treat samosa as a manufactured article for tax purposes!

When GST was introduced, it was intended to replace India’s incredibly complex indirect tax system. Offering a single tax (inclusive of central and state taxes) and credit for taxes paid on inputs, thus removing multiple taxation, changing the ease of doing business and directly adding at least 1 to 2 percent of GDP It was supposed to add up. But getting the states to tax their sovereign powers and vest them with a sovereign federal entity called the GST Council where the Center and the states sit (in theory at least) on a level platform was a big change.

To get the states to agree, the then Finance Minister Arun Jaitley did two things – one, the existing state tax structure – both tax and collection infrastructure – was simply subsumed into the GST. And second, a complex system of multiple slabs, exempt categories and a separate “sin tax” system was created for different constituencies and interests.

Hundreds of items of daily consumption have been discounted for more than half the weighting in the Consumer Price Index, due to the imperative political necessity to bow at the altar of “poverty”. Meanwhile, the equally forced political imperative should be seen as a punishment for the wealthy (the reality might be otherwise). The tax is levied, and because of this, vacuum cleaners, dishwashers and paint are classified as equivalent to “aircraft for personal use”. ,

There are also deep rifts in the GST Council, with states collecting a higher share of taxes (and therefore accounting for more production) than others demanding a greater share of the voice. The growing trust deficit between the Center and the states has reached a level where the West Bengal chief minister accused the council of “authoritarianism and majoritarianism” and termed the proceedings “toxic”. Obviously, the GST reforms cannot wait.