The Goods and Services Tax (GST) will subsume central excise, service tax, VAT and other local levies and make India one market for a seamless flow of goods and services. As approved by the Lok Sabha, the Central GST (CGST) law, provides an ‘anti-profiteering’ clause to ensure business passes on the benefit of reduced tax incidence on goods or services or both to consumers.
Clause 171(1) of the GST Bill affords any tax rate reduction on goods or services supply, or the input tax credit benefit shall be passed on to the consumer by means of a commensurate reduction in prices. The intention of this step is to defend consumers from inflation after GST implementation. But while the objective may sound simple, implementing an anti-profiteering clause is oppressed with solemn risks.
The issue remains on whether anti-profiteering will be seen on a Presence Across Nation (PAN)-India basis or state to state. For example, after the implementation of GST in one state, the tax rate could be lowered. Will a typical pan-India figure be counted to conclude whether the benefit of reduction in tax rate has been passed on? Also, will the profit analysis be done at the entity level or product level? The rulebooks that should give strong guidelines to all these issues, is the extensive mention across India Inc.
The biggest challenge, according to tax experts, is that of compliance. After all, movement in prices could be due to a congregation of reasons such as the demand-supply scenario, competition and in certain cases, prices of a commodity in international markets, the level of the currency and so on.
However, the government is pushing hard for the GST roll-out to begin from 1 July, in spite of so much ambiguity. Corporates, especially small and medium enterprises, are ill-prepared as the infrastructure is still not in place to deal with changes that GST would bring along and in such a scenario, going ahead with something as complex as the anti-profiteering clause may lead to a lot of disruption.
GST was implemented in Australia in the year 2000 and the organizations were aware that an anti-profiteering law was to be implemented a year in advance. So they had enough time to prepare accordingly and their competition commission was also geared up accordingly. In India, it was only in the second draft in November 2016 that it was announced that this clause would be made mandatory.
Organizations are concerned if the anti-profiteering law will result in witch-hunting by tax authorities.
To conclude, the anti-profiteering clause is hitherto scantily effort by the government to manage businesses and may lead to an officious hallucination. If implemented, it could have a sternly deleterious upshot both on business and on sentiment at the bourses.