Firms may get to increase prices after transferring GST cuts

Companies are allowed to raise costs of products and services according to their business cycle without dread of getting captured in the anti-profiteering provision in the Goods and Services Tax (GST) law once they have passed on the advantage of tax rate cuts to buyers, said an administration.

The explanation from the official, who knows about how the National Anti-profiteering Authority (NAA) and its analytical arm work, comes when ambiguity in the law and the ongoing expansion of the profiteering watchdog's tenure just as an expansion in penalty for violation have prompted worries that the pricing liberty of business stands reduced.

due to absence of guidelines on the most proficient method on how to execute anti-profiteering provisions in the Central GST Act, companies don't know to what extent they are relied upon to keep up a price after they decrease price to pass on the benefit of a tax cut to customers. This is likewise troubling for companies that have dealt with indictments of profiteering for specific periods in the past.

The liberty to increase price according to the business cycle will come as an alleviation to companies, particularly large Fast-Moving Consumer Goods (FMCG) makers that have confronted 'profiteering' charges under GST law.

As per the EY tax partner, Abhishek Jain, "businesses may at time need to expand edges on a better selling product to offset losses in different products. There is still an ambiguity on whether that expansion in edge for some products would be acceptable by the specialists as a justification at a cost increment. Independently, industry has also been anticipating detailed guidelines on calculating the amount of benifit to be passed on and in explicit, the duration for which the decreased price is to be proceeded”.

The other factor that has got business worried is the never-ending nature of the anti-profiteering provision in the CGST Act even though the tenure of the NAA is characterized. The provision which mandates prompt value reduction of goods and services commensurate with the tax cut, does not specify a sunset clause.

The anti-profiteering provision might be directed by any assigned by government authority or agency in a less detailed manner after NAA's term finishes as the tax system would have stabilised out by then. The GST Council extended the term of NAA by two years in June, which empowers it to keep on working till end of 2021. The Council had also in June decided to let NAA impose a penalty equivalent to 10 per cent of the profiteered amount on the individuals who pocket the tax benefit implied for consumers.

Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.