Anti-profiteering here to stay, use it sparingly PDF Print E-mail
Tuesday, 20 June 2017 04:33
AddThis Social Bookmark Button

Shobhana's edit

Need clear rules that could, for example, rule out going after firms operating in competitive markets 


Given the GST rollout on July 1 is bound to leave thousands of companies unprepared on the paperwork, the government has done well to allow assesses a simple self-certified return for the first couple of months. Even after this, several firms would be struggling to adjust to the new system, but some teething troubles are to be expected when a change of this magnitude is being ushered in. However, the online compliance, which should become less onerous after a few months, would be worrying companies far less than the anti-profiteering clause which the government proposes to put in place for two years. Many had expected the rule to be a transient feature of the GST, with a life of less than a year. That it will remain in force for a good two years has come as a surprise, and there is no telling if the GST Council extends it since, as tax collections stabilise, the Council will be consistently cutting GST rates across all product categories for several years.

The government understandably wants any gains made by manufacturers—either by virtue of a lower tax rate or higher input tax credits, or both—to be passed on to consumers, so as to achieve its objective of an inflation-neutral GST. The finance minister said on Sunday, when the rules were finally framed, he hoped the tax authorities would not need to use the anti-profiteering law and that it was merely a deterrent. While no one doubts the government’s intentions, the fact is that a provision of this nature will give the authorities the upper hand and discretion to question companies on pricing decisions. Giving the taxman the last word on pricing matters cannot be a healthy practice; if the past is anything to go by, assesses could end up being harassed and rather than the system getting cleaned up—as is the aim of GST—it could remain muddied by disputes, corruption and litigation. The price of a product is influenced by several factors. The tax incidence on manufacturers of soaps is set to fall from 23% to 18%, but an increase in the price of palmolein might constrain them from passing on the entire gains to consumers. At the end of the day, prices, in a free economy, must be determined by demand and supply and the government must support this school of thought. That the anti-profiteering authority will be manned entirely by a team of government officers cannot be reassuring for industry; replacing a couple of the officials with independent tax experts, or former judges, would go down well with India Inc.

Indeed, experience with tax officials has been quite unfortunate. In transfer pricing, for instance, authorities made huge additions to the incomes of various MNCs and the cases all ended up in litigation. It is after this that safe harbour rules, specifying profit margins, were introduced, but even those did not work well since the profit margins arrived at by the tax department were seen to be too high by the companies. The Advance Pricing Agreements (APAs), more in the nature of bilateral agreements, have worked better. Similarly, in the case of the anti-profiteering clause, there is the danger of lots of litigation as the authorities and the companies will have different views on whether tax benefits have been passed on. It would have helped if the FM or the revenue secretary had categorically ruled out applying the anti-profiteering clause to sectors where there are four or more players. It is still not too late to bake these into the rules.


You are here  : Home Tax Policy Anti-profiteering here to stay, use it sparingly