1. GST impact on price fixation: Government guidance missing

GST impact on price fixation: Government guidance missing

It has arrived!! After many missed deadlines. Yes, history has been created on 1st July 2017 with the introduction of GST in India.

By: | Published: July 3, 2017 8:07 AM
Has it taken 30 years from the start i.e when the first baby step of GST was taken by way of MODVAT implementation in 1986-87? (Reuters)

It has arrived!! After many missed deadlines. Yes, history has been created on 1st July 2017 with the introduction of GST in India. Finally!! Has it taken 30 years from the start i.e when the first baby step of GST was taken by way of MODVAT implementation in 1986-87? Or can we say 17 years – when for the first time a committee was formed to prepare a design of GST. Be it whatever, it really has been a very long journey to bring this dream come true in India.

To introduce GST in India was not an easy task. It was critical that due to the federal structure it was prudent that consensus on the entire model of GST between centre and state be achieved. Further, a lot of preparatory work was done by way of studying the best internal practices across the globe. One such area was relating to anti-profiteering provision. It is felt that the GST Council while looking at numerous issues surrounding GST was not able to really put in much time on the anti-profiteering provision.

As we know, Anti-profiteering provision was for the first time inserted in the draft GST law in the November 2016 version. India had no clue what it meant. What is Anti-profiteering provision? One section was introduced which stated that ‘any reduction in rate of tax or any supply of goods or services or the benefit of input tax credit shall be passed by on recipient by way of commensurate reduction in prices’. As has been observed in advanced countries when GST was introduced, the economies witnessed inflation. In order to avoid this and also to give consumer confidence – that prices of goods will not increase, the government brought in the concept of anti-profiteering in GST.

GST is expected to bring benefit to businesses by way of increased credits and elimination of cascading effect i.e. tax on tax. The likelihood of its benefits not being passed on by businesses, resulting in public disaffection with this radical reform, are areas of highest concern for the government which can be observed from the various statements made by the officials. To cater to the point that the ultimate benefit of GST is passed on to the end consumer, the concept of Anti-profiteering was introduced.

It is but obvious that if a particular behaviour is expected from the businesses ie to pass on the benefits to consumer, it is important that the underlying legal provisions are clearly articulated coupled with specific methodology. Finally, the anti-profiteering rules were released on June 19, 2017 and the expectation was that one would know what steps were required to be followed by trade and industry to comply with anti-profiteering provisions. But alas! There was nothing on the methodology to be followed in order to compute the benefit.

1st July has arrived and till date there is no clarity as what are businesses required to do. The unanswered questions are – Do I need to change my prices with effect from 1st July 2017? What if I do not? How will businesses compute the benefit resulting from increased credits and reduction in rates? Will it be calculated at a company level or product level? Will it be a net profit or gross profit? Can I add additional expenses which I am required to incur due to GST while computing the cost and then arriving at the benefit? What if I have loss in one category of product and gain in another? Can I net it off?

The Government should have released some guidance regarding, methodology including calculations and periodicity to reflect such commensurate reduction, before GST is implemented i.e. 01st July 2017. The release of clear guidance would have helped the industry to comply with the Anti-profiteering provisions. Should the businesses be blamed if they do not tinker with their prices due to want of clarity? Ideally not. It is earnestly requested that without wasting any more time the focus of the government now should be to work on the methodology and give some clarity on the anti-profiteering provisions.

Author is partner — indirect tax and GST, PwC

  1. Govind Kalaga
    Jul 3, 2017 at 5:00 pm
    so nothing is clear.
    Reply

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