10 Jul 2018, 00:00 — 9 min read
Summary: Retailers Association of India (RAI) and Deloitte collaborate to explore how anti-profiteering legislation under GST will impact retailers. Excerpts from a joint report are presented below.
Goods & Services Tax (GST) in India is a momentous step towards reducing the cascading impact of taxation across the supply chain. To ensure that no supplier or any other link in the chain profits unjustifiably because of GST, the government has introduced an Anti-Profiteering legislation under the law. It impacts every brand and every retailer in the system. It is an important law which would be pursued vigorously by the concerned authorities. However, there’s not enough knowledge available in the market about it.
Anti-profiteering under GST
The anti-profiteering provisions are designed to protect consumers by restricting companies from benefiting unjustly on account of any reduction in GST rates or enhancement in tax credit pool.
Key requirements in India
The Central GST Act, 2017 imposes obligation upon taxpayers to reduce the prices in following manner:
To ensure compliance, a National Anti-Profiteering Authority and state level screening committees have been formed to review complaints of anti-profiteering. The Director General of Safeguards handles detailed investigation of cases.
Non-compliance with anti-profiteering measures may entail severe penal consequences under the GST law. The authorities may order the defaulter to reduce the prices of supplies to ensure that the benefit of tax rate cuts or enhanced credits is passed on to the customer. While the penalties can also be levied as provided under the law, the taxpayer may be ordered to return the amount of benefit not passed to the customer along with applicable interest. In extreme cases, the registration of the taxpayer may be cancelled. Failure to address anti- profiteering related requirements in any manner may affect consumer confidence as well as impact the company’s reputation.
What else do we know?
1. Anti-profiteering applies to both goods and services
2. All channel partners are impacted (brand owners, distributors, exclusive retailers etc.)
3. Both MRP and non-MRP based product lines are within ambit
4. Anti-profiteering is not a onetime activity since the law, rates keep changing
Anti-profiteering brings in a dynamic situation for businesses where, every time there occurs a reduction in GST rates or enhancement in credit pool, the benefit needs to be passed on to consumers. Therefore, every price change is expected to be backed by data, documentation providing the formulas and workings explaining the rationale behind the hike.
Companies should prepare their systems and processes to deal with the requirements of anti–profiteering on a go forward basis. Having said this, anti-profiteering should not be viewed as a price regulation imposed on companies preventing them from usual price increases, which may be on account of past trends, increase in costs or enhanced margins.
There is limited guidance available on the methodology to be applied to compute the “commensurate benefit” to be passed to the customers. Unlike other countries, the anti profiteering authority has not mandated a specific calculation or methodology.
It is only fair to say that every company while determining its pricing strategy is determined by competitive forces. The pricing decisions differ amongst sectors, product lines, SKUs, business segments etc.
At the least, keeping in mind that pricing is never a straight forward decision, below are some points worth considering in looking at the application of anti-profiteering provisions:
Retail specific issues
It would be useful to consider making applications through industry bodies to the extent possible so that specific guidelines dealing with industry specific concerns may be issued. Industry based forums should be approached to resolve issues unique to each industry.
Anti-profiteering is likely to be an area where policy and practice will continue to develop. In the interim, it is important to develop and implement a plan to comply with the law. As some of these clarifications may emerge in due course, the industry may also think of taking advance ruling on critical issues.
In the meanwhile, the following may be done:
Article source: STOrai Magazine
Excerpted from the report ‘Emerging Issues on Anti-Profiteering under India GST’ by RAI in partnership with Deloitte. Anil Talreja, Bela Sheth Mao, Rajeev Dimri, Parul Anand, Sheena Sareen, Himanshu Gupta are contributors.
Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the views, official policy or position of GlobalLinker.
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