Anti-Profiteering provisions – How far desirable? Anti-Profiteering provisions – How far desirable? Anti-profiteering provisions under GST-How far desirable
By: – Srinivasan Krishnamachari
Goods and Services Tax – GST
Dated:- 4-12-2017
There is a new provision Section 171 in the CGST Act read with Rules 122 to 137 of the CGST Rules that enable the Government to constitute an authority to monitor the prices that businesses charge for goods and services, following the introduction of GST and reduce it commensurate to the GST gains , if not passed on already to consumers.
This is in line with the Constitution of India providing for price control in the concurrent list or what is otherwise called as List III of Schedule VII of entry 97 where among other things dealt therein, taxation matters are one.
The fact that Center and States have concurrent powers to legislate from list III did not however witness either of them making any anti-profiteering Legislation except i
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n cartelize to hold on to the gains to strengthen their lobby to retain the GST gains. In such an event the role of the oversight agency assumes relevance and importance post GST.
It is also felt at the same time that it will be too difficult like finding some needles in the haystack, to pinpoint those who profited in a given case of reduction in the post GST scenario compared to before and after the tax change.
Further, the job of such an agency will be even otherwise pretty much difficult since reduction in prices could be genuinely attributable to very many factors other than a rate reduction as it is fervently believed by the Government.
May be it is good to have such an Oversight Agency in place lest the prospect of a progressive reduction in rates on the successful functioning of GST should lead to profiteering tendencies among businesses.
Well, in that sense it is good to have it but not good enough if the Government went with the hare of reform and hunted hard with the houn
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T in their Country to assess the impact of the reduction in rates on prices across various sectors of goods and services and across their country.
Penal actions were tarried and taken only in 14 cases across the country. Will you believe it and that too only on specific study and information that gains were made but were not parted to the consumers?
The result was that they were left with good enough time to gather adequate price data bearing upon taxes such that they could persuade business to pass on the tax benefits to the people in the form of reduced prices.
Even the Malaysian experiment reveals that the country prepared the business and people for two long years before GST could be introduced as a unified central tax at a meager rate of 6%.
The Malaysian Customs Department provided enough education and software support of accounting packages to business, tuned to handle GST with ease unlike the unfortunate Indian experience of glitches ridden electronic framework that GSTN h
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other factors to have had a positive influence on price in my personal opinion for the following reasons;
There is only a thin line between Profit and Profiteering. What is the guarantee that what business considers a normal profit may be treated as profiteering by the Government. Profit is considered a legitimate reward for risk taken by the business.
Profit is normally influenced by variety of factors like operational efficiency, demand-supply proposition, a new market advantage, Price penetration, seasonality of a product or services so on and so forth.
In such a situation, if a businessman earns a slightly higher profit it would not perhaps require under Anti-profiteering clause to pass on the benefit to his customer always?
There is no straight formula prescribed under the regulations to quantify the impact of input tax credits or the reduction in the price on account of any reduction in the tax rate with the final prices of goods or services. How to deal with this under GST
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credits available instead of non-recoverable taxes etc) of the same products or class of products. GST would then apply to that new GST exclusive selling price.
Once the tax commenced, the prices set by businesses should be commensurate with the relevant market sensitivities, expectations and acceptance.
As noted by the Chairman of the ACCC, any well informed, competitive market operating in a climate of low inflation and good corporate citizenship can alone ensure that the vast majority of businesses will act fairly.
For most Indian businesses, complying with these provisions is no small matter.
It is reasonable to expect that in a dynamic, competitive and diverse market such as India, market forces will ensure that any reduction in an Indian business' cost base on account of the GST will flow through to lower prices
As part of anti-profiteering strategies for business, they must be encouraged to follow non profiteering policies by first providing them with
a) Adequate tools a
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uction agreeable to business and consumers in a happy way.
Some time, supply chain cost is reduced purely due to business efficiency. Such situations may not require price reduction
The GST rate fixation exercise has followed largely the template of superimposition of the present central and state taxes and rounding off all the rates to the nearest higher percentage, as understood from the FM's recent remarks.
As can be seen, the gap between the old rate and the new being so narrow except perhaps in the 178 items shifted with effect from 15th November from 28% to 18% and a few others from 18% to 12%, that it is tough to take any anti-profiteering measure at this instant.
In fact, it is argued that the entire tax fitment exercise cuts the aggregate of the old taxes so fine in relation to the new rates and careful blocking of ITC in many cases, that it would almost leave one with no big gain accruing due to the change that it should be termed unlawful.
However, whatever be the gain,
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