GST – Anti Profiteering Measure

GST the big bang tax reform is just around the corner. It has hit many speed breakers but at the same time, given its importance and expectations, all stakeholders are pushing as hard as possible. The meetings of the Council appear to be promising and many things are being settled.

Whenever any new system is implemented there is always uncertainty around it. Same is the case with GST. Whether profits will go up or Costs will be more? Which credit will be available and where will be bottleneck? Thus, due to fear of unknown people tend to charge high price and which leads to inflation. Across the world major economies have faced inflation in immediate years after the implementation of GST. To curb the inflation the Government has put a specific provision in proposed GST law.

As per Section 163 of the Model / Proposed GST Law, 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 the price of the said goods and/or services supplied by him.

It is expected that GST will be having better credit system and therefore the business will not be facing cascading effects of taxes. With this concept in mind the Government insists that if due to GST’s introduction if the assessee gets benefit in costs, it should be forwarded to the end user. Further if the person who is getting the benefit due to GST and better credit chain does not forward the benefit to the end user he may be penalised if the prices are not reduced to commensurate the benefits.

Many factors like demand, supply, distribution network, etc determine the prices of a product. It is not easy to estimate the economic impact due to change in taxes. Thus, it may be possible that this anti profiteering provision may cause more inconvenience to business community. Globally, Malaysia during its GST implementation introduced this concept of controlling inflation through controlling prices. It introduced Price Control and Anti Profiteering Regulation ‘PCAPR’, which ascertained a reasonable ‘Net Profit Margin’ for every product. Any person earning profit over and above the reasonable profit was liable to penalty.

Only time will tell how Indian Businesses will cope with such law.

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