Anti-profiteering under GST: A leap of faith for consumers and industry6 min read . Updated: 22 Jun 2018, 11:45 AM IST
The GST anti-profiteering provisions are a double edged sword and should be used judiciously and exceptionally, rather than as a rule
India introduced Goods and Services Tax (GST) in July 2017 to remove the cascading effect of erstwhile indirect taxes and bring in a framework of broader and seamless tax credit. The GST regime sought to simplify compliances and lower the overall cost of goods and services in the economy to ultimately benefit the end consumers. 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.
Anti-profiteering provisions have been enacted under the GST regime in India 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 (a) reduction in the rate of GST or (b) increase in input tax credit, to consumer.
A National Anti-Profiteering Authority (Authority) has been constituted for 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.
While no doubt this is a good step towards consumer protection, it comes with its own ambiguities/ drawbacks since the concept of anti-profiteering is still at a nascent stage in India. 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 of the anti-profiteering provisions makes it unclear for the industry as to how long the specified benefits need to be passed on, especially in situations where their overall cost may have increased due to various commercial factors.
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.
In Malaysia, which implemented GST in the recent past and has now withdrawn the same, exact methodology for computation of the benefits on account of GST was prescribed. Australia, Canada and New Zealand are some of the other countries which had put in similar provisions when GST was implemented. In Australia, a commission was formed to oversee the pricing after introduction of GST and to control cases of undue profiteering. It had also set up a national GST price hotline to deal with consumer complaints. In spite of many such initiatives, anti-profiteering provisions are controversial and often result in disputes and litigation. There are many factors in determining the benefits of GST and each factor would differ from one company to another even in the same industry.
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 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. This process would be more complex for determining the benefit with respect to common costs. 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 reduction in losses.
In the recent past, businesses in various sectors have received notices under anti-profiteering provisions. Big players in retail and FMCG industries are already dealing with the issues on the ground. In view of the challenges discussed above, businesses need to take up various precautionary measures in order to mitigate the adverse effects of the anti-profiteering provisions.
Businesses should consider evaluating the likely impact of 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 need arises.
In case of goods statutorily required to display maximum retail price (MRP) on the packages, the MRP may need to be decreased/increased, as the case may be in harmony with the MRP related rules/law in this regard.
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. While the effect of anti-profiteering provisions may not be apparent immediately, the impact would be visible in due course. However, GST is a new and evolving law, hence, there’s still a sense of confusion and lack of clarity on many aspects. Lot more clarity is expected on various related issues including the ones highlighted above to make compliance with the anti-profiteering provisions smooth, certain and hassle free. 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.
Are the businesses expected to pass on the benefits immediately after the legislative changes? Is there any duration prescribed in the law within which the benefits accruing out of GST has to be passed on?
Benefits are required to be computed from the date of introduction of GST, i.e 1 July 2017 and passed on to the customers as and when such benefits arise. There is no specific timeline prescribed within which the benefits are to be passed on.
Whether any benefit or cost efficiency achieved due to changes in transaction structure resulting due to implementation of GST, needs to be passed on under the anti-profiteering provisions?
Under anti-profiteering provisions the benefit on account of reduction of rate and increase in input tax credit is required to be passed on. Thus, if benefits are not related to these two aspects, ideally the anti-profiteering provision would not apply. A detailed study of all the related aspect should be carried out before arriving at any conclusion.
What are businesses expected to do, once an order has been passed by the National Anti-Profiteering Authority based on a complaint filed by the consumer
Any order passed by the Authority has to be immediately complied with by the businesses failing which action shall be initiated to recover the amounts in accordance with the GST law. However, the Authority’s decisions could be appealed before an Appellate Authority.
With inputs from CA Madhur Harlalka and CA Sunil Kumar
Vikas Vasal is national leader tax–Grant Thornton India LLP. You can send your queries to firstname.lastname@example.org