Although the final shape of the anti-profiteering authority and its functioning is still not clear, revenue secretary Hasmukh Adhia said that it may involve the guilty entity depositing the amount made through profiteering into the consumer welfare fund, a provision for which is made under section 57 of the Central GST Act. Speaking at an event organised by The Indian Express, he added that clear rules and framework under the anti-profiteering clause was work under progress. “There are companies that are oligopolies with a huge market share in a particular product which has seen a reduction in tax incidence under GST. Now if these companies don’t pass on the benefit to the consumers then we can ask them to reduce their prices, However, if they don’t do it, we can also ask them to despots the entire amount amassed through profiteering into the consumer welfare fund,” Adhia said.
The anti-profiteering clause has been provided for in the GST Act to ensure that companies or manufacturers who fail to pass on the benefit of lower tax incidence to the consumer post July 1 are penalised. This has received severe criticism from several quarters on the fear that the clause could be used as a tool for harassment of taxpayers. The government has, however, countered it saying that the law would be required in rare cases as market-based competition would ensure commodity prices are reduced in proportion to tax cut in most cases.
Separately, Adhia said that the government needed to ensure that consumers are made aware of reduced tax incidence on many supplies including works contract. This awareness was needed to that the builders don’t extract any additional capital from home buyers. “For works contract, currently the tax incidence is 6% compared to 12% under GST. However, in the new regime input credit will be available for all the raw materials including cement, steel, aluminium, glass, paint, ceramics and tiles. Since most of these items are in the 28% tax slab, a builder which procures them with proper bill will have nearly zero output tax liability,” Adhia explained.
The cost of some of the inputs for work contracts, including steel, will be lower under the new regime, as the government has proposed a GST rate of 5 per cent for coal (which is used in making steel and some other products), much lower than the current effective tax incidence of 11.5 per cent, said analysts. The GST regime will reduce the cash component of the construction economy, because, to avail of ITC, the raw materials have to be sourced from GST-registered vendors. This will lead to greater tax compliance.