The GST Confusion Around Kerala’s Favourite Snacks
Imagine relishing a crispy pazhampori (banana fritter) with evening chai, only to realise that it falls under the 18% GST bracket. Meanwhile, peanut chikki (a sweet candy made of jaggery and peanuts) enjoys a much lower 5% GST rate.
This taxation disparity isn’t just limited to pazhampori. Other Kerala tea-time favourites, such as ada, undam pori, and unniyappam, are also taxed at the highest slab. But why is that?
The answer lies in HSN codes and product classification. Many traditional Indian snacks lack a predefined Harmonised System of Nomenclature (HSN) code. And in the absence of a specific classification, they default to the highest GST bracket.
HSN Codes: The Hidden Culprit in High Taxation
How GST Classification Works
Under the GST system, food products are assigned HSN codes, which determine their tax rates. The problem? Traditional and region-specific snacks are often unclassified, leading them to fall into the standard 18% GST category.
For example:
| Snack | Tax Rate | Reason for Classification |
|---|---|---|
| Pazhampori (Banana Fritter) | 18% | No specific HSN code |
| Unniyappam (Rice & Jaggery Sweet) | 5% | Falls under ‘sweet meats’ |
| Banana Chips | 12% | Categorised as ‘fried namkeen’ |
| Peanut Chikki | 5% | Recognised as a traditional Indian sweet |
The biggest challenge is that classification isn’t based on common sense but on bureaucratic technicalities. If a product is undefined under GST, it defaults to the highest slab.
Why Some Snacks Get 5% and Others 18%
The disparity in tax rates can be explained by two factors:
1️⃣ Manufacturing vs. Retail vs. Restaurant Sales
- Packaged products often attract higher GST rates.
- The same snack sold in a restaurant is charged only 5% GST because it is classified as a restaurant service rather than a standalone product.
2️⃣ Regional vs. National Classification
- Many Indian snacks are region-specific, and tax authorities often fail to create distinct classifications for them.
- For instance, Unniyappam in Kerala and Adhirasam in Tamil Nadu are essentially the same but may have different GST classifications.
Industry Struggles: A Long Battle for Tax Clarity
For small businesses and MSMEs, these tax ambiguities create huge operational issues.
- Bakeries and snack manufacturers in Kerala have repeatedly sought tax clarifications, but GST rules require only registered GST taxpayers to file clarification requests, not industry associations.
- This means small businesses have to individually approach the GST authorities to get a ruling on their products, leading to delays and confusion.
For example, banana chips and tapioca chips manufacturers had to wait years to get an official GST ruling clarifying their 12% tax rate instead of 18%.
Possible Solutions: How Can This Be Fixed?
💡 1. Introduction of Specific HSN Codes for Regional Snacks
- The GST Council should create a separate category for traditional Indian snacks to prevent unnecessary high taxation.
💡 2. Uniform Tax Rates for Similar Products
- If peanut chikki is taxed at 5%, other short-shelf-life, locally prepared snacks should also fall in the same slab.
💡 3. Lower Tax Rates for Small-Scale Snack Producers
- Many of these snacks are produced by home-based businesses and cooperatives like Kudumbashree in Kerala. A lower tax slab should be considered for their survival.
💡 4. Policy Intervention for Tax Reduction
- The Bakers Association of Kerala (BAKE) and other industry bodies should push for a single tax rate for all unbranded, fresh snacks to eliminate confusion.
Final Thoughts: The Need for Fair GST Classification
Taxation should be logical and fair. Kerala’s tea-time favourites like pazhampori, ada, and undam pori shouldn’t be taxed at the same rate as luxury goods. A more consistent GST structure is needed to support local food industries and small businesses.
Until then, the 18% GST on pazhampori remains an unnecessary tax burden on Malayalis who simply want to enjoy their evening chai with their favourite snack.