Anti-profiteering under GST: A leap of faith for consumers and industry

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Mains Paper 2: Polity | Government policies and interventions for development in various sectors and issues arising out of their design and implementation.

From UPSC perspective, the following things are important:

Prelims level: Anti Profiteering Provisions under GST

Mains level:  Businesses in various sectors have received notices under anti-profiteering for non-compliance. This is due to unclear guidelines on records. The newscard suggests measures to counter such incidences.


News

Inflationary Effect of the GST

  1. Historically, many countries who introduced GST or value-added tax found to it to have an inflationary effect in the initial years.
  2. This inflationary effect has largely been attributed to the benefit accruing due to GST was not being passed on through the transaction chain to the ultimate customer.

GST anti-profiteering provisions

  1. Anti-profiteering provisions have been enacted under the GST regime to curb undue profiteering by businesses and ensure that the benefits by way of a reduction in the price of the goods/services are passed on to the consumer.
  2. The provisions require businesses to pass on the benefit arising on account of
  • reduction in the rate of GST
  • increase in input tax credit, to the consumer.

National Anti-Profiteering Authority

  1. A National Anti-Profiteering Authority has been constituted for the efficient administration of these provisions
  2. Any consumer can approach the Authority with documentary evidence against any supplier who has not passed on the specified benefit.
  3. The Authority is entrusted with the power to determine whether the benefit of GST is passed on:
  • to identify persons who have not passed on the benefit;
  • to order reduction of prices;
  • to repay the customer an amount which is not passed on along with interest/imposition of penalty on the supplier;
  • cancellation of registration etc.

Ambiguities in Anti Profiteering provisions

Various challenges are being faced by the business community in complying with anti-profiteering rules:

  1. The anti-profiteering provisions do not prescribe the specific guidelines on records or documentation to be maintained to prove compliance with the rules.
  2. A definite method for computing the benefit on implementing GST has also not been prescribed.
  3. Absence of clear guidelines could lead to ambiguity and businesses will be constrained in proving the compliance with these provisions.
  4. Absence of specific time limit with respect to operation makes it unclear for the industry as to how long the specified benefits need to be passed on.
  5. Businesses are very dynamic and pricing is determined based on the market forces in most of the cases.
  6. Even though the regular price increase does not come under the purview of anti-profiteering, justifying the same could become a difficult task for the businesses.

Dilemma of Business community

  1. Under the anti-profiteering provisions, businesses are required to pass on the benefit of reduction in tax rate and increase in input tax credit on any supply of goods or services.
  2. This implies that benefit needs to be passed on at each supply level and not at the entity level.
  3. If an entity is engaged in supplying more than one product or service then for each such supply the benefits, if any, needs to be computed and passed on to the recipient.
  4. There could be cases where losses are incurred in certain products, even in such cases the benefit may have to be passed on if applying GST has resulted in a reduction in losses.
  5. In the recent past, businesses in various sectors have received notices under anti-profiteering provisions.

The Way Forward

  1. Businesses should consider evaluating the likely impact of the anti-profiteering clause and review its pricing policy for the product and/or services.
  2. Even where there is no benefit accruing to the company, the same has to be properly documented so that it can be explained to the authorities if the need arises.
  3. Anti-profiteering provisions are a positive step towards protecting consumer interests and rein in undue profiteering so that GST does not add to inflation in the economy.
  4. However, GST is a new and evolving law, hence, there’s still a sense of confusion and lack of clarity on many aspects.
  5. One step may be to adopt a soft approach vis-à-vis the businesses where there is no prima facie mala fide intent. This would go a long way in building the confidence and trust among the businesses.
Goods and Services Tax (GST)
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