Green Island School principal Steve Hayward said it would take money from pupils relying on fundraising to offset the cost of school camps.
The school held twice-weekly sausage sizzles selling to pupils inside the school grounds, an activity that would remain exempt from the new fee.
However, pupils and volunteer parents also sold sausages and home baking on the street, which would attract the council's new fee for non-profit groups, with the $16 fee being lost from proceeds each time.
"That's just another cost that will come off the kids,'' Mr Hayward said.
"I'd be really disappointed to see that being introduced. It's hard enough raising funds with schools today, without having more compliance for a thing that I would say is minimal hassle at the moment.''
The proposal was presented to councillors as part of last week's council 2012-13 pre-draft annual and long-term plan meeting.
Ms MacGill was asked to prepare a report ahead of the budget being signed off, after several councillors raised concerns at the meeting.
Chalmers Community Board chairwoman Jan Tucker also raised concerns, saying the fees could spell the end for some community markets in Dunedin.
The fees aimed to cover the cost of the council's environmental health operation, which was increasing as the number of events in Dunedin grew, Ms MacGill said.
"We are there to protect the public, and we wouldn't be doing our job if we weren't ensuring they were operating safely,'' she said.