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The Goods and Services Tax Council in November 2017 made large-scale tax cuts on items such as shampoos, cosmetics, hair oil and groceries from 28% to 18%. (Bloomberg)
The Goods and Services Tax Council in November 2017 made large-scale tax cuts on items such as shampoos, cosmetics, hair oil and groceries from 28% to 18%. (Bloomberg)

P&G India faces charges over profiteering under GST law

  • P&G India reportedly did not pass on GST rate cut benefits of about 250 crore to consumers
  • P&G India says passed on the net benefit to consumers and that it continues to cooperate with authorities

New Delhi: The government has started a probe against P&G India on complaints that the consumer goods maker profiteered on some of its products on which tax rates were reduced in 2017, a person with direct knowledge of the development said, requesting anonymity.

The investigation seeks to find if the company fully passed on the benefit of tax cuts to consumers after the federal indirect tax body, the Goods and Services Tax (GST) Council cut taxes on products such as shampoos, cosmetics, hair oil and groceries from 28% to 18% in November 2017.

A P&G spokesperson said however that the company has passed on the “net benefit" of the tax cuts to consumers. “As a responsible corporate, P&G has always been committed to passing the net benefit of GST rate reduction to the consumers. We have passed the net benefit and communicated the same via advertising in mass media to help increase awareness with the consumers, shoppers and retailers," the spokesperson said in a statement to Mint. The spokesperson also said that the company “will continue to co-operate with authorities in this matter and provide clarifications."

“We hope that the concerned authorities will appreciate the procedure followed to pass on the GST benefit and will take a just view of the matter," said the spokesperson.

A PTI report on Tuesday said, citing people in know of the matter, that the investigation arm of the National Anti-profiteering authority (NAA) has found that P&G India has passed on the GST rate cut benefits to the tune of about 250 crore through commensurate price cuts.

GST law requires businesses and merchants to fully pass on the benefit of tax reduction or availability of input tax credits to consumers. Experts said that however that some large corporations may unintentionally be found on the wrong side of the law for technical challenges in immediately complying after a tax rate cut is announced.

FMCG companies typically face a major logistics challenge. They have a diverse product portfolio and each of their products are sold in different quantities. They also have a large supply chain comprising super stockists, distributors, stockists and retailers, which make it difficult to change the prices on all the products already in the supply chain immediately after the tax rate cut announcement.

“For large FMCG companies having multiple stock keeping units (SKUs) and elongated distribution channels, it is difficult to fulfil the anti-profiteering requirements at each SKU level. However, the legislation mandates the need to pass on the benefits on each product," said M. S. Mani, partner, Deloitte India. He said such companies need to do a comprehensive drill to ascertain the benefits of tax rate cuts and the manner and extent to which they can be passed on.

A second government official, who also asked not to be named, said many businesses are not familiar with the requirement under law. “First, it is a new law. Second, anti-profiteering is a new concept. The level of awareness is low among businesses and consumers," said the official.

Another area in anti-profiteering where many companies face difficulty is that instead of cutting prices as warranted by the tax rate cut, they tend to increase the grammage or quantity of the product for the convenience of pricing.

For example, on a shampoo sachet of 2, increasing the quantity is more convenient rather than making a 10 percentage point reduction in the price.

A survey conducted by online community of consumers Local Circles has shown a steady improvement in customer experience in recent months in getting the benefit of tax cuts intended for them. The survey said 30% people among 16,000 polled believed in April that they are getting the benefit of tax cuts on items like shampoos, cosmetics and groceries, up from 15% in June 2018 and 27% in January 2019.

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