Shift to plain food packaging in India sees growth in fakes

Fake food in India has become “rampant” after businesses have taken measures to avoid paying a 5 per cent Goods and Services Tax (GST) on branded foods.

In a bid to avoid the tax, many manufacturers have chosen to apply for deregistration of their trademarks or have opted for plain packaging absent of brand names, logos and marketing claims.

The shift to unregistered trademarks and plain packaging has been a coup for counterfeiters with fakes flooding the market at cheaper prices, according to The Times of India.

The publication notes that a 1kg pack of original Shivaling branded tur dal (split pigeon pea) costs Rs 70, while the knockoff version is being sold at Rs 60.

“We have lost over 50 per cent of our business to this fake brand,” said Jayesh Mehta, director of Shivaling Marketing. “We were sending 60 truckloads (each with 16 metric tonnes) of tur dal a month to Karnataka. Now it has come down to 25.”

“Duplication of brands was a menace earlier too; it has become more rampant under GST. The law now is so designed that perpetrators can easily escape punishment,” Mehta added.

The new tax rate was introduced on the grounds that branded foods were being sold at a significantly higher cost than their unbranded counterparts.

Following the introduction of the 5 per cent tax, many brands opted for deregistration of their trademarks to avoid paying the levy but India’s GST Council stamped down on the practice in September.

In a press release, the Council noted that any brand registered as on 15 May 2017 under the Trademarks Act or Copyright Act, or under a similar law in any other country, “shall be deemed to be a registered brand for the purposes of levy of 5 per cent GST, irrespective of whether or not such brand is subsequently deregistered”.  

The Council clarification adds that “this 5 per cent GST will, however, not apply if the person concerned voluntarily foregoes any actionable claim or enforceable right on such brand name”, in which the relevant tax authorities must be notified and the now plain packaging must include a statement, both in English and the local language, stating that the manufacturer has voluntarily foregone his actionable claim or enforceable right to the brand and its logos.

The news has led many manufacturers to choose the plain packaging option rather than deregistration, and according to the Wholesale Food Grains and Pulses Traders Association, very few big firms have retained their trademarks. Competition with fakes in plain packaging is now becoming rife.

“There is now an indirect licence to culprits to duplicate reputed brands,” Rameshchandra Lahoti, chairman of the Wholesale Food Grains and Pulses Traders Association, told The Times of India. “Gullible consumers may be happy their favourite brands are available at cheaper prices, but they don’t know they are fake ones. Consumers can’t seek relief in case of any issues with their purchases.”

The GST Council is expected to discuss the thriving trade of fakes as a result of the GST rate at its next meeting later this month.

The fake influx is interesting in light of a report from Brand Finance earlier this month which points to potential losses of almost $187bn if plain packaging were mandated for alcohol, confectionary, savoury snacks and sugary drinks in order to to curb lifestyle diseases.

While not examining the risk of encouraging illicit trade directly, the report suggested the impact of illicit trade on the sectors analysed "would likely differ, depending on the nature of the products, i.e. illicit trade in alcohol would likely arise, although savoury snacks would not be affected in the same manner."