Goods and Services Tax: Is Anti-Profiteering a Reality?


The issue whether anti-profiteering measures would find a place in the model Goods and Services Tax (GST) law or not has been highly debated. The Finance Minister has quite often stated that the introduction of GST would lead to a reduction in prices, considering the reduction in tax rate. He also remarked that currently, almost 60-70 per cent of the commodities suffer a tax of 27 per cent plus a large number of other taxes, which would reduce under GST. Against this background, he has also suggested that such reduced prices should be passed over to the consumer.

The said concept of anti-profiteering already exists in a few nations, notably, Malaysia. In Malaysia, there is a Price Control and Anti-Profiteering Act 2011, which is enforced by the National Price Council.  The Council has released a Shopper’s Guide, thereby acting as a price setter through benchmarking of prices. Further, there are inbuilt provisions for imposition of heavy fines and penalties for those traders who fail to comply with such requirement.

Finally, provisions governing anti-profiteering have turned into reality with the recently-introduced revised model Goods and Services Tax law released by the Central Board of Excise, Customs and Service Tax on November 25, 2016. Section 163 of the Model GST Law provides that the Central Government would 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 has actually resulted in a commensurate reduction in the price of the said goods and/or services supplied by him.

Further, powers have been conferred on such authority, amongst others, to impose penalty where it finds that the price being charged has not been reduced as a result of the benefits availed under the GST. One would believe that the reason for introduction of such provisions is that the Government wants to ensure that the traders do not take undue advantage by using GST as an excuse to raise the price of the goods for the purpose of making excessive profits, but rather that such reduction in costs should be passed on to the consumer.

How is the Government going to control prices?

This is an interesting question.  In my view, the Government should consider setting up Ministries which would monitor, control and take immediate action on any price increase due to excessive profiteering apart from enacting a separate law akin to the Price Control and Anti-Profiteering Act, 2011 in Malaysia.  The creation of Shopper’s Guide, as in the case of Malaysia, would help aid in this cause.  It is also imperative that heavy penalties/fines are imposed on traders who fail to pass on the benefit of reduced prices to consumers.

Concluding thoughts

In my view, this proposal is indeed welcome.  However, there is a high probability that the absence of clarity in the legislation could lead to unforeseen litigation apart from additional costs owing to a detailed cost audit which could extend to various products.

It is indeed imperative that companies should cautiously visit their costing strategies so that unwanted disputes could be avoided. I would also believe that the larger hypermarkets like LuLu Hypermarket, Big Bazaar, Reliance Retail etc. would play a big role in acting as price setters of various products, which could potentially impact smaller players in the organised and unorganised sectors.