Popcorn three ways sounds like a weirdly contrived dish at a pretentious restaurant. Instead, it is the way that India taxes popcorn. As the Wall Street Journal reported back in January (paywalled, but you can access an ungated version here):
A seemingly routine ruling by India’s top tax officials went off like metal in a microwave.
The government laid out a three-tiered system for taxing popcorn depending on if it is packaged or sold loose, carries a brand name or is generic, and is salted or sweet. Caramel popcorn, the government said in December, would be taxed at 18%—nearly akin to a luxury product.
The people weren’t pleased. An explanation from India’s finance minister, chair of the tax council, didn’t help.
“I want to explain the whole background of the popcorn taxes to you: Salted popcorn, caramelized popcorn, plain popcorn,” said Nirmala Sitharaman at a news conference in late December. “When it comes to popcorn’s tax treatment, as long as it is salty, whether it is with salt, spiced, tangy, chilli powder, that’s all 5%. But when it has added caramelized sugar, it is no longer salty.”
But the 5% will apply only if the popcorn is sold loose. Put it in a sealed plastic packet and slap a label on it and the rate jumps to 12%. An accompanying press note explained further that caramel popcorn had transformed into a confectionery, and merited a correspondingly higher tax rate.
I'm sure there are legions of lawyers queueing up to argue cases about whether salted caramel popcorn counts as salty or sweet. Or whether pick-and-mix popcorn counts as a packaged good. These are the sorts of ridiculous arguments that New Zealand avoids by having an incredibly simple GST that applies with an equal rate to all goods and services (with a couple of easily segregated exceptions, including financial services and residential rents). As soon as politicians start to mess with the simple tax, the efficiency of the tax system decreases. Any extra revenue from having a higher rate on some products could easily be eaten away by legal battles over which category goods fall into - for example, the famous Jaffa Cake controversy in the UK involved a legal case over whether a Jaffa Cake was a cake, or a biscuit.
Let's keep our simple GST. We shouldn't mess with it by exempting products. India can fight over its three different popcorn tax rates. We don't need that at all.
[HT: The Dangerous Economist, back in February]
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