NEW DELHI: India Inc will have to pass on any benefits derived from the proposed Goods and Services Tax (GST) to consumers in the form of reduced prices or face penal provisions, according to the draft law, which has proposed an anti-profiteering clause.
An authority would be created or empowered under GST law to ensure that companies do not pocket gains in lieu of input tax credits or lower rates, according to the draft law circulated to state governments.
“The central government may by law constitute an authority, or entrust an existing authority constituted under any law, to 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 price of the said goods and or services supplied by him,” the draft says.
The meeting was postponed from November 25 after state governments sought changes to the draft and the council will take it up after officials thrash out those issues.
The provision is drawn from the Malaysian GST framework, rolled out in 2015, that provided for a separate anti-profiteering law to ensure that companies and traders do not get undue benefits from the sudden lowering of the tax rate and make consumers suffer price shocks. Malaysian tax authorities keep a check on sudden spikes in profit reported in quarterly earnings after the GST roll out.
The centre and the states have been keen to ensure that the benefits from seamless input credits and removal of levies under the new indirect tax regime is passed on to consumers.
The GST structure has four rates – 5%, 12%, 18% and 28%. The effective tax incidence will fall when producers get seamless input tax credit and the cascading of taxes is removed. Many consumer durables could see the effective tax decline by a few percentage points.
There has been some apprehension among policymakers about companies absorbing the tax benefits and not passing them on to consumers.
The empowered committee of state finance ministers had raised this issue at a meeting with the industry on GST some time ago. Companies and industries have been known to pocket tax advantages.
“It was seen when VAT was introduced… It is observed when tax cuts are introduced in the official. Companies usually raise prices before the budget and then reduce it marginally if a tax is cut, without passing on the actual benefit to consumers. Some experts are not enthused by the idea.
The Economic Times, 25th November 2016
