How taxing popcorn in India caused problems

See A ‘National Tragedy’ in India: Popcorn Is Taxed Three Ways: Critics say India’s efforts to simplify system and cut red tape are going in reverse; ‘popcorn is popcorn’ by Tripti Lahiri of The WSJ. Excerpts:

"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."

"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."

"“Popcorn is popcorn,” said Mohandas Pai, chairman of investment firm Aarin Capital Partners and former CFO of Infosys, one of India’s biggest technology services firms. “This shows the attitude that prevails among officials who try to nitpick and to create complications despite the need for simplicity. 

Pai said that tax officials were making a mockery of a 2017 landmark tax reform—the Goods and Services Tax—aimed at simplifying a system in which sales and other taxes varied by state and knit India into a single market. Its backers had hoped for just two tax rates."

"Moviegoers, for example, face three different rates on popcorn. If they buy salted popcorn at the concession stand—independently of their ticket—they’ll pay 5%, said Nitin Datar, who heads an association for independent cinema operators. But theaters sometimes sell movie tickets and popcorn as a bundle, in which case the tax rate will depend on the type of ticket."

"In December, India’s Supreme Court laid to rest a 15-year-tax dispute over whether small packages of coconut oil—widely used in Indian cooking—should be taxed at the low tax rate of 5% as a food product or at a double-digit rate as a beauty product, given many Indian women also apply it to their hair."

"Defenders of the government say the differing rates are an effort to keep the indirect tax progressive, by taxing products likely to be purchased by the poor (like loose popcorn) differently than those likely to be purchased by more affluent individuals. India has a per capita income of around $2,500, but also is among the world’s top creators of millionaires and billionaires."

"Pai, the investor, said he wished the government had used the opportunity to replace the various rates with one rate.

“Putting it like that in the first place itself was wrong,” he said. “Now when you got a chance to clarify, you reiterate that—that’s even worse.”"