The Goods and Services Tax Council has made several revisions of the Goods and Services Tax model on the basis of the representations provided by the industry stakeholders. These include simplification of work procedures, allocating lower tax slabs to certain goods, elimination of taxes on securities, etc.
One of the most important changes made in the GST model law is the introduction of the “anti-profiteering” clause. As per Clause 171 businesses are required to pass on the benefits of reduction in taxes and refunds received through input tax credits or otherwise to their customers by lowering the prices of their goods and services appropriately.
Importance of Anti-Profiteering Clause in the GST Regime
Earlier, when Goods and Services tax was introduced in other countries viz. Australia, New Zealand, Canada, etc. they observed a high surge in inflation, albeit for a limited period. This was mainly because of the gaps between the concept and its execution.
GST can only serve its purpose when the entire chain of a business works in sync. So, manufacturers must lower taxes to benefit retailers which must again revise the rates to benefit the consumers.
Even though GST is meant to eliminate the cascading effect of taxes and thus reduce costs of goods and services for the end consumers, the responsibility lies with the manufacturers, traders, and service providers that are a part of the business cycle. The anti-profiteering clause was created to keep this in check and punish those who engage in unfair business practices.
GST Anti-Profiteering Panel
The government has set a five-member anti-profiteering panel with a sunset date of two years. This committee will ensure that the businesses pass on the benefits of tax reduction to their consumers. It will also have the authority to take appropriate action on the non-compliant taxpayers.
The government has released the anti-profiteering rules under the GST regime which will empower the anti-profiteering panel so that they can:
- Order reduction in prices in accordance with the lowering of taxes under GST.
- Charge penalties on those found guilty or even cancel their registration on reasonable grounds.
- Seek return of the undue profits earned from not passing on the benefit of reduced taxes to the consumers along with an 18% interest rate.
- Recover funds that are not claimed through returns by eligible taxpayers, or in case the taxpayers are unidentifiable. As per Section 57 of SGST and CGST Acts, the recovered amount has to be deposited in the Consumer Welfare Fund.
What Should You Expect?
In the words of India’s revenue secretary Hasmukh Adhia, the government wants the companies to cooperate and hopes that it doesn’t have to use the anti-profiteering “weapon”.
While the government may have noble intentions with its anti-profiteering clause, the end result may be far from the expectations. The authority set for exercising this clause is meant to ensure that businesses don’t generate unfair profits by increasing the prices of goods and commodities arbitrarily. However, it also makes it easier for them to interfere with the businesses unnecessarily. They may force a taxable person to reduce prices at their discretion even if it results in an undeserving loss. Moreover, they can create unnecessary hurdles and affect the flow of business operations with tedious formalities and investigations.
In the past, Malaysia also tried an anti-profiteering and price control law which turned out to be an utter disaster. The initiative backfired and was abandoned shortly as a result. Thus, we can’t rule out the possibility of something similar happening in India too.
For now, the impact of the anti-profiteering clause is open to interpretation and speculation. However, as a business owner, it’s in your best interest to comply with GST regulations and reduce the prices of your goods and/or services in accordance with the provision of input tax credits and reduction in taxes as applicable.