November 26, 2017

India is likely to adopt a product-specific approach to impose anti-profiteering provisions to ensure that consumers get the full benefit of price cuts due to the goods and services tax (GST), including recent revisions.

This means that a company will not be able to reduce prices of slow-moving products in its portfolio while keeping those of fast-moving ones high. "Reduction in overall tax incidence will have to be passed on," said a Central Board of Excise and Customs (CBEC) official. "The authority will examine input tax credit flowing into a product and reduction in total tax incidence when it gets a complaint."

The GST Council had, at its last meeting, cut the tax rate on 178 household goods such as detergents, shampoo, shaving cream and cosmetics to 18 per cent from 28 per cent . The government has asked industry to pass on GST reductions to consumers.

The CBEC chairman has also written to companies and restaurants individually asking them to cut prices. The government is keen to ensure that benefits are passed on for all the items and there is no averaging at an organisational level.

Provisions in the anti-profiteering framework prescribe that cuts in tax incidence have to be passed on commensurately to consumers.

For instance, the tax has been reduced for most ceramic items, which makes it possible for companies to keep prices high on bigselling units such as sinks and tiles and cut them on others to show an average reduction of 10 percentage points to 18 per cent from 28 per cent .

The Indian anti-profiteering model is closer to the Australian one, which also follows a product-wise approach.

Tax experts, however, said some flexibility needed to be built into the framework. "Fixing anti-profiteering guidelines on the basis of products is simpler and will help in mapping the entire supply chain," said EY partner Bipin Sapra.

"However, each company has its unique cost and margin structure, given its business, and the same cannot be ignored while deciding whether the price of a particular product sold by a particular entity will decrease or not and if so by how much."

Within a product segment, companies should be allowed to have differential pricing so long as the total quantum of profit has been passed on, said PwC indirect tax leader Pratik Jain. "For example, if a company has many brands of shampoo, then they can possibly decide for which ones they want to pass more benefit and where less," he said.

The anti-profiteering authority is likely to be constituted in the next 10 days. The union cabinet has already approved its structure.

India has adopted a three-tier structure for the investigation of anti-profiteering complaints from consumers.

State-level screening committees and a standing committee at the national level will field complaints. They will refer them to the director general of safeguards for investigation. The investigation report will then be taken up by the National Anti-Profiteering Authority for a final decision.

Anti-profiteering provisions are meant to act as a deterrence, the official insisted, and the government is keen that they aren't required to be invoked too often.

[The Economic Times]