GST impact on makers of Indian sweets: Hampering or increasing creativity?

As GST is unravelling one thing makes for a curious case. How does one decide which items are going to be taxed under which category? These are the central planning exercises which econs always warn about.

So like this interesting piece on impact of GST on sweet makers says normal barfis are taxed at 5% but chocolate ones are taxed at 28%!

Would it bother you if halwa were designated ‘jelly’, and dhokla ‘cake’? It is worrying mithai makers, though, as the goods and services tax (GST) has made taxation of sweets and savouries a minefield.

For example, plain barfi, which is a ‘sweet’, is taxed at the lowest rate of 5%, but chocolate barfi with a chocolate-flavoured layer on top risks being bundled with chocolates and taxed at 28%. Even plain barfi garnished with cardamom and dry fruit could be taxed along with nuts at 12%.

More complex dishes like falooda — a combination of ice cream, fruit, jelly, vermicelli pudding, jam, chocolate shavings, etc — and fruit jelly custard trifle are easy targets for the highest tax rate of 28%. Even the diabetic-friendly versions of sweets, gums, etc that contain synthetic sweetening agents like sorbitol come under 18% GST.

Amid confusion over GST rates, mithai makers are playing safe by cutting back on variety. “We are making only plain sandesh, plain badusha, plain barfi and plain peda,” said Mahesh Rajasekhar from sweet chain K C Das that has stopped making mango and chocolate sandesh.

For some it is hampering creativity, others are being more creative:

“We are trying to figure out if we need to pay 28% tax on it as many of our chocolate variations have more than 5% cocoa content. Badam milk, basundi and rasmalai are also a concern as we aren’t sure if they are sweets (5% tax) or beverages (12% tax). GST is going to hamper our creativity.”

A sweet like chikki made from equal parts groundnut and jaggery certainly leaves a lot of room for interpretation, said Suresh Nair, partner, indirect tax, Ernst & Young, adding, “Chapter 2008 says nuts such as groundnut and cashew, whether roasted, sweetened, salted or otherwise, are taxable at 18%.”

That sounds like an opportunity to K T Srinivasa Raja, founder, Adyar Anand Bhavan (A2B) and member of Chennai Hotels Association (CHA). “If it is plain roasted cashew, we would have to tax it at 18%. Instead, we would add some more ingredients like aloo bhujia, namkeen, mixture, etc, to make it a snack that can be taxed at 12%. Even better, make it a sweet for taxation at 5%.”

Sellers are getting creative for lower tax rates. As fruit jellies, mousse, pastries and pies come under the 18% GST slab, some are considering renaming and re-packaging them as sweets to pay 5% tax. Shopkeepers said western desserts like macaroons, custards, tarts, cakes and pastries could even be Indianised to avoid the high tax rate of 18%.


2 Responses to “GST impact on makers of Indian sweets: Hampering or increasing creativity?”

  1. vikramml Says:

    Creativity ofcourse… we will call it something like jugaad and then study it in business schools and then Lalu Yadav will go to Yale or wherever the hell he went.

  2. Linkfest - Kairos Capital Says:

    […] Mostly Economics – GST and creativity […]

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.

%d bloggers like this: