Revenue secretary Hasmukh Adhia on Monday asked companies to hold back any price increases until July 1, when the Goods and Services Tax (GST) is to be rolled out, saying the government would investigate the hikes. The GST has built in an anti-profiteering clause to ensure companies pass on the entire gains, arising from a smaller tax incidence in the new regime, in the form of lower prices. The provision has raised the hackles of the industry which fears it may be used by taxmen to harass them.
“I have already started getting some reports that even before the rates were announced, some companies were hiking the price of their product in anticipation. I won’t name any sector but we know exactly which companies are doing it,” Adhia observed on a leading business TV channel.
The revenue secretary added that while companies may have increased prices following a rise in input costs, which they could not absorb, these raises could nevertheless be investigated by the anti-profiteering authority.
“We hope we don’t have to operationalise this section at all but the provision is required or else our entire assumption of how consumer price index (CPI) would behave (under GST) would go haywire,” Adhia said.
The secretary believes the incidence of tax would be lower for a host of goods and services. Foodgrain, for instance, currently subject to a cascading of taxes, would be taxed at 0% in the new structure.
Adhia said the GST Council may raise the input credit available on transition stock from the current level of 40%, adding a legal committee was vetting the rules. Of the nine sets of rules under GST, the Council has so far cleared seven; rules relating to transition and refund are expected to be approved on June 3.
Further, tax exemptions given to industries in North-Eastern and other hilly states, Adhia said the Centre has decided to grandfather these by way of refunds. However, the Central government would refund only 58% of Central Goods and Service Tax (CGST) to be paid by the companies while the states would need to decide on their stance. This is because under the GST, 42% of the tax revenues would devolve on the states.
Adhia said the GST rate of 5% for air travel would be “marginally positive” for the airlines as they currently pay close to 6%. Although the GST rate for business class air travel will be 12% as opposed to 9% currently, the airlines would be able to utilise the input tax credit for services used in their operations thus bringing down the effective tax incidence, he said.
Similarly, telecom operators would need to pay GST forany spectrum acquired pre-2016 if any installment is paid after July 1, 2017. However, they would be entitled to input tax credit. Adhia also clarified mobile companies would not be eligible for input tax credit on telecom towers since these are considered to be immovable property and are not in the ambit of the new regime.