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Anti-profiteering clause under GST must not fill Indian businessmen with dread

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K Srinivasan
K SrinivasanJun 14, 2017 | 15:38

Anti-profiteering clause under GST must not fill Indian businessmen with dread

There is a provision in the GST law that gives unfettered powers to the government to constitute an authority to monitor the prices that businesses charge for goods and services, post-GST. This is in line with the Constitution of India providing for price control in the concurrent list.

The fact that the Centre and states have concurrent powers to legislate from the concurrent list did not see either of them making any anti-profiteering legislation except in 1958 by the West Bengal government without any good coming of it, and now after a lapse of 59 years by the Centre under the GST law.

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The cue one gets from an old historical enactment of anti-profiteering provision from within our own country is that it should not kill the main legislation itself for whose protection it is supposed to stand.

The function of the anti-profiteering authority is to examine the business cost base to ascertain the actual fact. If found that any business does not pass on the tax gains made resultant upon a reduction in the tax rate due to introduction of the GST, it should initiate action to recover those fortuitous gains.

It, however, looks like the government is going ahead with putting in place such a body and the proposal will soon be ready to be tabled in one of the forthcoming meetings of the GST council, before rolling it out.

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The government should also go slow on the anti-profiteering clause so that businesses are encouraged to be self-compliant to make the reform measures of the government a great success. (Credit: Reuters photo)

Many experts already know that such a body has very short shelf life and needed only at the initial implementation stage of the GST. It is supposed to curb profiteering tendencies of big businesses and if they are large tier two/tier three suppliers, not a penny can be extracted from them by the main business to be able to pass it on to its customers. This is the hard reality already experienced by such main businesses. 

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The main possibility therefore is from unorganised and very small businesses which is hard to contain and would pave way only for undesirable practices of people posted to monitor it.

It is also felt that it will be too difficult like finding a needle in the haystalk to pinpoint those who profited in a given case of reduction in the post-GST scenario.

Further, the job of such an agency will be even otherwise  pretty much difficult as 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 the GST should lead to profiteering tendencies among businesses.

Well, in a 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 hound of anti-profiteering measures.

The only fear is that the GST engine should not get derailed by its own bogies of business as the smooth running of business in a co-operative environment is essential for the GST to kick in successfully.

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International experience of anti-profiteering measures taken after the introduction of GST in a country like Australia tells us that the said job was entrusted to the Australian Competition and Consumers Commission (ACCC) way ahead of the introduction of GST 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 enough time to gather adequate tax data bearing upon prices 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 the GST as a unified central tax at a meagre rate of 6 per cent could be introduced. The Malaysian customs department provided enough education and software support of accounting packages to businesses, tuned to handle GST with ease.

Therefore, how far setting up an anti-profiteering body would help translate the rate reductions into price gains for the people is a big question.

Given that the very policy objective is going to be short-lived, it behooves the government to tread softly in venturing to enforce anti-profiteering measures as there is an inherent difficulty in telling between the rate reduction and other factors to have had a positive influence on price.

The gap between the old rate and the new being so narrow, it is tough to take any anti-profiteering action on this count. In fact, the entire tax fitment exercise cuts the aggregate of the old taxes so fine in relation to the new rates fixed that it leaves one with no academic possibility of concluding of any unlawful gain accruing due to the rate change.

However, one must follow closely what the finance minister is repeatedly saying that though the gap between the old and the new rates is not significant, there is substantial gain accruing from the ITC benefits across goods and services/across central and state levies/across cross-border territories and littoral waters which was not available before.

This may result in accrual of ITC and increased availability of credit in the hands of business as gains to set off against the post-GST liabilities, compared to earlier. It is precisely this portion of the gains of business wherever applicable that is sought to be targeted by the anti-profiteering legislation that we all should understand and want the trade to appreciate.

One would like the business to come forward of its own accord and render sector-wise data of the gains so that trade bodies and the Competition Commission of India can sit together and  bring forth a blueprint of prices reflecting and factoring in the kind of post-GST gains delineated above.

If it comes to that it is only fair that the market forces are allowed to determine prices much the same way the GST rates are promised to be determined without governmental action.

It is also an appeal to the government to go slow on the anti-profiteering legislation so that businesses are encouraged to be self-compliant to make the reform measures of the government a great success.

 

Last updated: June 14, 2017 | 15:38
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