Anti-profiteering measures under GST

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  • Government to bestow Anti-profiteering Body with unrestrained power, under GST regime.

Anti-profiteering provisions

The GST Council, chaired by Union Finance Minister Arun Jaitley and comprising state finance ministers as members, recently approved the anti-profiteering rules. Goods and Services Tax (GST) is an indirect tax throughout India to replace taxes levied by the central and state governments. It was introduced as The Constitution (One Hundred and Twenty Second Amendment) Act 2017,… Continue reading Anti-profiteering provisions

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Anti-Profiteering Provisions under the GST Law

Current Scenario

  • India has finalized four tax rates that will apply to services including telecoms, insurance, hotels and restaurants under a new sales tax which should be rolled out on July 1
  • The tax rates will be 5, 12, 18 and 28 percent – in line with those applying to goods. Telecoms and financial services will be taxed at a standard rate of 18% while transport services will be taxed at 5%
  • The Council recently approved the tax rates for 1,211 items, of which 7 per cent will be exempted, 14 per cent will be in the 5 per cent slab, 17 per cent in the 12 per cent category, 43 per cent in the 18 per cent segment, while 19 per cent of goods will go into the top tax bracket of 28 per cent.
  • Basic food items like cereals, eggs and meat will attract zero tax while processed food items will be charged between 12 and 28 per cent

Loopholes in the clause

  • Anti-profiteering clause is the lack of clarity on rules related to valuation and tax rates.
  • For instance, GST council has decided four-slab rates, however they are yet to decide which rate shall be applicable to which. Unless this is decided for all good and services and a tax rate is mapped for each category, it will be difficult to estimate and plan on the pricing, under the GST administration.
  • Limited time for application may result in some inconsistencies and ultimately penalize the companies, under anti-profiteering, though Finance minister has assured of no witch-hunting by the administration.

Need for anti-profiteering measure

  • Countries like Canada, New Zealand, Australia and Malaysia have witnessed increased in inflation following the implementation of the GST.
  • Changes proposed under GST regime would result in improved profit margin at every stage of supply chain.
  • And there is high possibility that businesses may not pass on this benefit to the customers.
  • Therefore there need to be a mechanism to ensure that the profit be passed on to the consumer.

 Some international experiences

Australia’s example

Australia in July 2000 replaced a series of inefficient taxes with a GST in July 2000 and enacted similar anti-profiteering measures.

The Australian Competition and Consumer Commission (ACCC) was charged with the responsibility of monitoring prices 12 months before the commencement of GST.

The focus of Australian Competition and Consumer Commission was:-

  • On educating consumers and businesses
  • Publication of pricing guidelines,
  • Communication strategies for different market segments
  • And “hot lines” for consumers and businesses to get advice

Education was supported by extensive and sophisticated monitoring of prices leading up to the introduction of GST.

Malaysian experience

  • Malaysia also introduced an anti-profiteering provision, along with the introduction of GST in April 2015.
  • However, it led to widespread litigation and was found to be administratively difficult to implement.

Our Thoughts

Anti-profiteering is still a work in progress. It has been introduced to protect the interest of consumers and at the same time not harming the industry interest. Efforts should be made towards transparency to identify aspersive practice if any. Further more time can be invested unless the government fully prepares a blue print and maps the estimate on the pricing of all products and services. Still the initiative surely protects the interests of the much relieved but anxious consumers from any possible chaos in near future.

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