India’s popcorn tax suggest a convoluted system

A seemingly ordinary decision by India’s leading tax authorities erupted unexpectedly, akin to metal in a microwave. The government has introduced a stratified taxation framework for popcorn, contingent upon its packaging status—whether it is sold loose or pre-packaged—its branding, and its flavor profile, distinguishing between salted and sweet variants. In December, the government announced that caramel popcorn would be subject to an 18% tax, positioning it nearly on par with that of luxury goods.
The populace expressed discontent. A clarification from India’s finance minister, who also chairs the tax council, pro ved insufficient. “I wish to elucidate the comprehensive context surrounding the popcorn taxation: salted popcorn, caramelized popcorn, plain popcorn,” remarked Nirmala Sitharaman during a press briefing in late December. “In terms of the tax implications for popcorn, any variant that is salty—be it seasoned with salt, spices, tangy flavors, or chili powder—falls under the 5% tax rate.” However, once caramelized sugar is introduced, it ceases to be salty.
The council elaborated in a press note that caramel popcorn has effectively evolved into a confectionery, warranting a higher tax rate accordingly. The office of the finance minister did not provide a response to a request for comment. The 5% tax will be applicable solely to loose popcorn, excluding any caramel variations. Encapsulate it in a sealed plastic packet, affix a label, and observe the rate escalate to 12%.
The taxation framework on popcorn has sparked a deluge of satirical memes, intense televised discussions, and exasperated remarks from notable economic figures, including former government advisors. One described the ruling as a “national tragedy.” A cartoon depicted Mahatma Gandhi, renowned for his protest against the British colonial monopoly on salt, which was subject to heavy taxation, now marching against taxes on popcorn. Critics argue that the variety of rates applied to the simple snack serves as a symbol of India’s persistent challenges in creating a conducive business environment, despite ongoing attempts to streamline regulations.
Packaged popcorn marketed by brands faces a steeper tax rate compared to its loose counterparts. “Popcorn is popcorn,” remarked Mohandas Pai, chairman of Aarin Capital Partners and former chief financial officer of Infosys Ltd, a leading player in India’s technology services sector. “This illustrates the prevailing mindset among officials who tend to overanalyze and introduce unnecessary complexities, even when simplicity is essential.” Pai asserted that tax officials were undermining the 2017 landmark tax reform—the Goods and Services Tax—designed to streamline a system characterized by disparate sales and other taxes across states, thereby integrating India into a unified market. The proponents anticipated the establishment of merely two tax rates.
However, the system was implemented with approximately six rates, alongside a compensation tax designed to address any shortfalls. During periodic assemblies, the tax council engages in discussions regarding the categorization of goods and services within these brackets. However, the GST framework occasionally introduces complexities.
Nitin Datar, who leads an association for independent cinema operators, noted that moviegoers purchasing salted popcorn at the concession stand—regardless of their ticket—will incur a 5% charge. However, cinemas occasionally offer movie tickets and popcorn as a package deal, whereby the applicable tax rate is contingent upon the category of the ticket. “If one is engaged in the sale of popcorn alongside ticket sales, then the applicable rates will be 18% or 12%,” he remarked, noting that certain cinema operators were facing some confusion.
Popcorn is merely one of many products that India has segmented into various tax brackets. In December, India’s Supreme Court resolved a protracted 15-year tax dispute regarding the classification of small packages of coconut oil, a staple in Indian cuisine. The court determined whether this product should be taxed at the lower rate of 5% as a food item or subjected to a higher, double-digit rate as a beauty product, considering its common use among Indian women for hair application. The contention emerged when tax authorities began imposing an elevated tax rate on diminutive pouches of the oil, justifying that such small quantities could be utilized for hair care in addition to culinary purposes. The highest court determined that the size of packaging, in isolation, could not serve as a valid rationale for imposing a disparate tax rate.
Proponents of the administration argue that the varying rates represent an attempt to maintain a progressive indirect tax system, whereby items typically acquired by lower-income consumers, such as loose popcorn, are taxed differently from those more commonly purchased by wealthier individuals. India’s per capita income stands at approximately $2,500, yet it ranks among the leading nations in the generation of millionaires and billionaires. A number of popcorn manufacturers expressed their relief following the clarification.
“The popcorn issue has perpetually been shrouded in confusion,” remarked Sanjay Vasoya, co-founder of Oceyan Funfoods, established in 2016 for the production and sale of packaged popcorn. He also markets fox nuts—a favored snack characterized by a texture akin to popcorn, derived from the seeds of an aquatic plant. Vasoya recounted that during his childhood, popcorn was a treat reserved for cinemas or fairs, and he aspired to broaden its accessibility. Following the challenging period of the pandemic, the business has been thriving, he remarked. He presents a selection of 19 distinct popcorn varieties, featuring flavors such as peri peri, sour cream and onion, and strawberry.
Nevertheless, he had erroneously assumed that all his popcorn products were subject to the 18% rate. Tax authorities in his state had not informed him that a reduced rate was applicable to the majority of his products, which were predominantly salted. Sitharaman’s announcement has provided clarity, he stated. “I find the sentiments expressed by the lady to be quite commendable.” The government has indicated that it has not introduced new taxes, instead merely clarifying the existing situation in response to a request for elucidation from an Indian state.
Pai, the investor, expressed a desire for the government to have seized the opportunity to consolidate the disparate rates into a single rate. “Articulating it in that manner from the outset was misguided,” he remarked. “Now that you have the opportunity to clarify, your reiteration only exacerbates the situation.”