Daily Editorial – Anti-profiteering Measures of GST Bill

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• Anti-profiteering measures of GST bill

1. GST bill, 2014
2. Draft model GST bill, 2016
3. Benefits 
4. Anti-profiteering measures introduced in GST
5. Implementation related challenges of anti-profiteering measures
6. Need for anti-profiteering measure
7. Some international experiences
8. Way ahead

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Click here to Download Daily Editorial PDF (2nd Jan. 2017)

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Anti-profiteering measures of GST bill

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GST bill, 2014

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Draft model GST bill, 2016

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Following are the salient features of draft GST bill:-

1. All forms of “supply” of goods and services will attract CGST (central levy) and SGST (state levy).
2.  The liability to pay CGST/SGST in relation to supply of goods and services will arise on the date of:
   1. Issue of invoice,
   2. Receipt of payment, whichever is the earliest.
3. The tax rate for CGST and SGST will not exceed 14%.
4.  GST Council will make recommendations to center on exemptions to GST.
5. The central government may, by law, setup an authority to examine if reduction in tax rate has resulted in commensurate reduction in prices of goods and services.
6. Every person who makes supply of goods and services and whose turnover exceeds Rs 20 lakh has to register in every state in which he conducts business.  The turnover threshold is Rs 10 lakh for special category states.
7. Every taxpayer shall be assigned a GST compliance rating score based on his record of compliance with the provisions of this Bill.
8. Every taxpayer while paying taxes on outputs, may take credit equivalent to taxes paid on inputs.
9. The central government may, by law, setup an authority to examine if reduction in tax rate has resulted in commensurate reduction in prices of goods and services.  The Authority may impose a penalty if prices have not been reduced.

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Benefits 

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• GST will reduce the complexity of taxes.
• It can facilitate seamless movement of goods across states.
• It will reduce the transaction costs of businesses.
• The procedure of GST registration would also be made simple, thereby improving the ease of starting a business in India.
• There are expectations among experts that with GST, we may see 2% jump in GDP growth.
• GST will plug the leakage of tax. This, in turn, gives more money in the government exchequer.
• Companies which are under unorganized sector will come under the tax regime.
• Number of tax departments will reduce which in turn may lead to less corruption.
• In the long run, the lower tax burden can decrease the prices of goods and services.

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Anti-profiteering measures introduced in GST

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Section 163 of the new Model GST Law proposes to ‘constitute an Authority, or entrust an existing Authority constituted under any law’, which shall regulate prices during the temporary inflation phase for a prescribed period.

The authority will examine whether input tax credits availed by any (registered) taxable person or the reduction in the price on account of any reduction in the tax rate have actually resulted in a commensurate reduction in the price of the said goods and/or services supplied by him.

The said authority may have many powers along with power to penalise any person found guilty of not reducing their prices in accordance with the reduction in tax cost as ascertained above.

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Implementation related challenges of anti-profiteering measures

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“The central government may, by law, setup an authority to examine if reduction in tax rate has resulted in commensurate reduction in prices of goods and services.  The Authority may impose a penalty if prices have not been reduced.”

• Government has introduced the provisions regarding setting up an authority that will take the task of to monitor the prices businesses charge for goods and services, but no mention has been made as to who will undertake this task.
• As the model GST law has not yet been enacted, it is not likely that an authority will be constituted or appointed soon.
• Some international experiences prove that anti-profiteering provisions are only effective if there is a significant lead-in time to allow the relevant authority to educate consumers and businesses.
• It is this education process that has the greatest impact on consumer confidence and business behaviour.
• But with a short “lead-in” time before the GST commences, the authorities have little or no time to exert any such influence.

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Need for anti-profiteering measure

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• 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.

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Some international experiences

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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.

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Way ahead

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• The policy framing process may be considerably easier than the administrative task of implementing anti-profiteering measures in practice.
• It would be rather difficult to find out the profiteers from the rest.
• If global experiences are to be leveraged, India may need to implement these measures at least three months aheadof the GST implementation date.
• A three-month buffer shall ensure that industry has enough time to recalibrate their cost accounts in the current regime.
• India has a competitive, open and growing market. Both Indian businesses and consumers are well placed to enjoy the benefits of GST, without government price monitoring.
• Central and state governments should try to make it easier for businesses to comply with the GST rather than imposing another compliance regime.

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