Centre doubles down on GST’s  gains for consumers

Centre doubles down on GST’s  gains for consumers

Context:

The Union Cabinet approved establishing the National Anti Profiteering Authority (NAA) under the Goods and Service Tax (GST) to ensure fair pricing.

Introduction:

• The Centre notified the latest set of cuts in the rate of tax to be levied on a wide range of goods as part of the Goods and Services Tax (GST), the Union Cabinet recently approved the creation of the National Anti-profiteering Authority to ensure that businesses pass on the benefits of GST to consumers.
• The decision was an outcome of sharp reduction in the GST rates of a large number of items of mass consumption.

About NAA:

• The NAA will be headed by a senior Secretary-level official of the Central government, with four technical members from either the Centre or the states.
• This is the second major GST-related decision taken by the government .

Objectives of establishing:

• To ensure that benefit of the reduction in prices under the uniform tax regime reaches the consumers.
• The Cabinet consented to creating positions of Chairman and technical members of the authority which would lead to immediate establishment of the apex body.
• To ensure that the latest tax rate reductions approved by the GST Council on more than 200 items are implanted immediately by businesses.
• The GST Council, at its recent meeting, held that restaurants had failed to pass on the benefit of input tax credit to customers by way of lower prices.
• Help in controlling inflation.
• The objective of the anti-profiteering clause in GST is to ensure that any reduction in tax rate as a result of GST should be passed on to consumers by way of commensurate reduction in prices.

Composition:

• The institutional framework comprises the NAA, a Standing Committee, and Screening Committees in every state and the Directorate General of Safeguards in the Central Board of Excise & Customs (CBEC).

Functions:

• The NPP can impose a penalty on the defaulting business entity and even order the cancellation of its registration under GST.
• It has the authority to order the supplier / business concerned to reduce its prices or return the undue benefit availed by it along with interest to the recipient of the goods or services.
• If the undue benefit cannot be passed on to the recipient, it can be ordered to be deposited in the Consumer Welfare Fund.
• In extreme cases, the NAA can impose a penalty on the defaulting business entity and even order the cancellation of its registration under GST.”

Implications:

Positive Implications

• Inflation :GST may bring in general inflation in the introductory phase as some goods and service become expensive and others cheaper(but the reduction in price is not passed on to customers). The anti – profiteering clause will minimise this risk.
• Confidence in GST :With a legal obligation on businesses to pass on the benefit, this will help in instilling confidence in GST among people.
• Intermediate Goods :Sectors dependent on intermediate goods may face sudden rise in price. This clause protects them.

Negative Implications

• Against Free Market: In a free market prices are decided by demand and supply. They eventually balance out. This is a distortion
• Fear of Tax Raj: Companies fear tax authorities may misuse this rule to unfairly target them or worse lead to bribed and corruption
• Adverse Impact on Investments: There may be a fall in investments due to the confusion created in implementation of this clause.

Economic reforms taken by the Government:

To provide further impetus to the economy, the present government has implemented a slew of economic reforms like:

1. Introduction of Insolvency and Bankruptcy Code (IBC).
2. Recapitalization package for the banks. Recapitalisation will help to redress the twin balance sheet problem and revive private investment.
3. Roll out of the game changing tax reform Goods and Services Tax (GST).
4. Crackdown against black money through demonetisation
5. Major changes in the Foreign Direct Investment (FDI) Policy regime with an aim to make it more liberal and investor friendly.