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.
Inflationary Effect of the GST
- Historically, many countries who introduced GST or value-added tax found to it to have an inflationary effect in the initial years.
- 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
- 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.
- 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
- A National Anti-Profiteering Authority has been constituted for the efficient administration of these provisions
- Any consumer can approach the Authority with documentary evidence against any supplier who has not passed on the specified benefit.
- 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:
- The anti-profiteering provisions do not prescribe the specific guidelines on records or documentation to be maintained to prove compliance with the rules.
- A definite method for computing the benefit on implementing GST has also not been prescribed.
- Absence of clear guidelines could lead to ambiguity and businesses will be constrained in proving the compliance with these provisions.
- 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.
- Businesses are very dynamic and pricing is determined based on the market forces in most of the cases.
- 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
- 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.
- This implies that benefit needs to be passed on at each supply level and not at the entity level.
- 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.
- 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.
- In the recent past, businesses in various sectors have received notices under anti-profiteering provisions.
The Way Forward
- Businesses should consider evaluating the likely impact of the anti-profiteering clause and review its pricing policy for the product and/or services.
- 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.
- 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.
- However, GST is a new and evolving law, hence, there’s still a sense of confusion and lack of clarity on many aspects.
- 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.