Following the recent ban, hookah bars in Karnataka have come under scrutiny for evading GST and ‘sin tax’. Public health advocates said hookah bars have been exploiting a loophole in the GST system to avoid the prescribed 28% GST rate and a 72% cess, known as a “sin tax”, by serving hookah as part of their food and beverage offerings. This controversial practice has raised significant concerns among regulatory authorities and public health advocates.
While the Shisha Cafes and Restaurants’ Association has approached the court claiming that the ban has resulted in employment loss, public health advocates said their licences are for running restaurants and not hookah bars. Hence, there is no question of employment loss.
Member of the State government’s High Power Committee on Tobacco Control said the strategy employed by hookah bars involves presenting hookah as a component of food and beverages, thereby subjecting it only to a 5% GST rate.
“Proponents of this approach argue that hookah can be classified as an “article for human consumption”, allowing it to fall under the lower tax bracket. However, this argument is contentious, as hookah is not a traditional food item and is widely acknowledged to pose significant health risks, including potential harm to respiratory and cardiovascular systems,” he told The Hindu.
Absence of health warnings
“Moreover, it has been observed that hookah bars may be neglecting the display of health warnings while serving hookah, further exacerbating concerns about their compliance with public health and safety regulations. The absence of prominent health advisories raises serious questions about the establishments’ commitment to safeguarding the well-being of their patrons and the general public,” he said.
He said the implications of this practice extend beyond potential tax evasion, touching upon broader issues of public health, consumer protection, and regulatory compliance. “Regulators and policymakers are urged to address this matter with utmost urgency to ensure that appropriate measures are taken to prevent the exploitation of tax regulations and uphold public health and safety standards,” he said.
Legal business, says Association
However, the President of the Shisha Cafes and Restaurants’ Association, claimed their business is legal and legitimate. “Apart from purchasing tax, sales tax and several other licence fees, we pay GST ranging between ₹15,000 to ₹20,000 to the government monthly,” he said.
“Hookah smoking could be compared to smoking cigarettes, and the High Court had earlier ruled that a trade licence was sufficient to run a hookah bar, and if a dedicated smoking area is provided within a restaurant, then there were no legal issues running the business,” he explained.
He said the Association had on February 9 approached the court challenging the State government’s order banning the use, sale, or service of smoking hookah in Karnataka. “We are planning to file another blanket petition on Tuesday,” he said.
Contending that the business of hookah also falls under the purview of Cigarettes and Other Tobacco Products (Prohibition of Advertisement and Regulation of Trade and Commerce, Production, Supply, and Distribution) Act, He said the regulation should be similar to tobacco products.
Pointing out that there are around 900 hookah cafes in Karnataka, including 500 in Bengaluru, he said that around 25,000 people are employed across all these hookah joints in the State. There are 12,000 people employed in Bengaluru alone, and these people are the breadwinners of their families, he added.