The GST Council, it appears, was upset about the fact that restaurants were not passing on the benefits of the GST and so, while lowering the GST to 5% for all restaurants except those in 5-star hotels, it decided they would not get input tax credit.
Though the government believes the national anti-profiteering authority (NAA) is critical to ensure producers pass on the benefits of GST cuts to customers—its press release talks of how rates have been slashed to 18% from 28% for goods falling under 178 categories/heads—it will end up causing a lot of harassment to producers across the country. That the government should notify the NAA authority just now is ironic since, at the same time, it is trying to simplify GST to avoid the kind of harassment that millions of producers are facing right now. A good example to show just what this will do is that of the restaurant business that, till recently, attracted a GST of 12% if the facilities were not air-conditioned and 18% if they were. The GST Council, it appears, was upset about the fact that restaurants were not passing on the benefits of the GST and so, while lowering the GST to 5% for all restaurants except those in 5-star hotels, it decided they would not get input tax credit. Even before the cut, restaurants said they could not pass on GST benefits since, while it looked as if their tax rates had been cut, they paid a large tax on their inputs which needed to be set off. And, now, after their input tax credit was withdrawn, several restaurant chains have hiked their prices.
Logically, they should cut prices since GST rates have come down, so there will be many complaints to the NAA authority. The question then is, will the Authority dismiss these complaints or will it investigate them; and when it does, will it take the restaurant-owners word for it or will it investigate each element of their pricing? And will it do the same across each item under the 178 categories/heads the government is talking of? Imagine the harassment when firms are asked to explain why they hiked prices or why they didn’t reduce rates commensurate with what people felt they should have.
What has been set off is nothing but the inspector-raj that the government professes to be trying to remove. In any case, when there is so much competition and limited demand, does the government really believe firms are cartelising to not pass on benefits to consumers—surely firms would lower prices, if they could, to gain customers? And, if there is cartelisation, why not get the Competition Commission to demonstrate this? If this was an isolated case, it would be one thing, the problem is that the government doesn’t seem to trust markets too much. Why else would it push for onerous price controls from pharmaceuticals to heart stents and even cotton seeds and, for good measure, impose stocking limits from time to time on agricultural commodities? That doesn’t augur well for those doing business in the country.