SUB GST p4.3

Concept and scope of Anti-Profiteering measure

21 May 2020

The Government wants that GST should not lead to general inflation and for this, it becomes necessary to ensure that benefits arising out of GST implementation be transferred to customers so that it may not lead to inflation. For this, anti-profiteering measures will help check price rise and also put a legal obligation on businesses to pass on the benefit. This will also help in instilling confidence in citizens.

Any reduction in the rate of tax on any supply of goods or services or the benefit of the input tax credit shall be passed on to the recipient by way of commensurate reduction in prices. Authority has been constituted by the government to examine whether input tax credits availed by any registered person or the reduction in the tax rate have resulted in a commensurate reduction in the price of the goods or services or both supplied by him.

Reduction of Tax Rate in GST Regime

Passing of benefit due to reduction of the tax rate, in case of supplies exclusive of tax or for immediate services is not a big challenge. This is because the reduction in tax rate will directly be evidenced by invoices, and the recipient will get the benefit from the rate reduction.

For example, eating out in a restaurant has become cheaper under GST (mostly 5% GST as compared to earlier 20% approx.). This benefit must be passed on to the consumers.

However, in cases where the contract of supplies is inclusive of taxes, this provision will cast responsibility on the supplier to reduce the price due to the reduction in the rate of taxes.

For example, FMCG items are normally sold on MRP basis or some other fixed prices by retailers. If there is any reduction in the rate of tax, it has to be passed on to the ultimate recipient. Accordingly, there will be a need to revise MRP or other prices fixed for such supplies.

However, if GST has a negative impact on the cost, then prices can be increased. For example: If the output supply was zero-rated in the previous regime and also remains zero-rated in the GST regime, the business will not get any input tax credit.

If the tax rates are increased either under forwarding charge or reverse charge, then prices may increase. For example, domestic LPG was exempt from tax under an earlier regime but now they fall under 5% GST and as such it will result in an increase in the prices of cooking gas (LPG).

The benefit of Input Tax Credit

Almost all industries will be affected with respect to the passing of benefits due to better credit chains. In most of the cases, be it service sector, manufacturing, trading, or any specific industry, taxpayers are expected to get the advantage of the better flow of input tax credit except sectors having zero-rated output supply. So overall the expectations of anti-profiteering provisions are commensurate reduction in prices of supplies.

Objectives of anti-profiteering measure in GST

The objectives of the anti-profiteering provision can be enumerated as under: 

• • If there is a reduction in the rate of tax on the supply of goods or services or 

• The benefit of an input tax credit is now available under GST

Then, a registered person must pass on the benefit by the reduction in prices to the consumer.