The GST tax was introduced five years ago and, according to a BBC status report on pizza coverage, has already begun generating more than $17bn (£15bn) a month for the Indian economy, which is the fifth largest in the world.
In August, the Khera Trading Companya New Delhi-based wholesaler, argued in court that its mozzarella topping should be classified as cheese, which has a GST of 12%, since more than 1/3 of the product is made up of “cheese and milk solids.”
However, a Haryana state court ruled against Khera saying the pizza topping contained 22% vegetable oil. Since vegetable fat is not an ingredient found in natural cheese, the court found Khera’s pizza to be an “edible preparation”, meaning it has a GST of 18%, which is significantly higher than 12% milk rate that Khera was fighting for.
This is not the first time the tax has wreaked havoc on the food industry in recent months. The BBC article shared additional cases where Indian food manufacturers found themselves in court as a direct result of GST fees.
In September this year, a court finally ended a 20-month-old case involving paratha, a crispy, flaky flatbread, which is taxed at 18%. he Vadilal Group argued that this was unfair as the roti, a generic round flatbread, is taxed a mere 5%.
Validal’s lawyers said the brand’s eight varieties of frozen paratha should be taxed at the same rate as the roti, as both foods are made primarily from wheat flour.
The court ruled against the food brand.
In another situation, a company that makes flavored milk has been subject to a 12% tax while plain milk is completely exempt from tax. A court said that flavored milk does not fall under the “definition of milk” and ruled in favor of the state.
The BBC shared thoughts from economists Vijay Kelkar and Ajay Shah, who said:
“…various pressure groups [in India] lobby for higher or lower taxes in one industry or another, and this distorts the resource allocation of the economy.” Since the government is a major buyer of goods and services, a low flat rate GST “would produce cost savings for all levels of government,” they believe.
What do you think India should do to simplify its tremendously complex GST rules?
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