Anti Profiteering Provisions.. Required or Not..?
Hello Readers,
Many of us would have come to know that, in 17th GST council meeting held yesterday (18th June 2017) , the Council has approved Anti-Profiteering Rules for easy mechanism of GST.
What is the reason for creating such provisions & rules..?
Is it necessary......?
Let us go into details...:-
History & Background:
If we go back to days when GST was implemented in various countries, it was led to inflationary conditions.
But the question is, since rates declared by government are more or less equal to rates under current regime., then why inflation arises..?
the answer is the effective rate of tax at the consumer level gets changed immediately at the time of
implementation, whereas industry takes time to pass on benefit(s) accrued to it to the consumer level due to many reasons such as:
1.Unawareness about benefits available
2. Lack of clarity on interpretational issues etc.
3. It may be intentional in monopolistic market whereby industry wants to increase its profit by maintaining its selling price and pocketing whole of the benefits.
Study on Implementation of VAT:
Comptroller and Auditor General of India conducted a national study on ‘Implementation of Value added Tax in India’ and released Study Report named ‘Lessons for transition to Goods and Services
Tax’ in June 2010. Relevant extracts form the report are as under:
"The white paper was sanguine that implementation of VAT will bring down the prices of goods due to rationalization of tax rates and abolition of cascading tax effects in the legacy systems. But
there was no system to monitor this impact and ensure that the benefits were indeed being passed on to the common man.
We selected a basket of goods and checked the records of 13 manufacturers in a state in three initial months of implementation of VAT, to check its impact on prices.
We found that manufacturers did not reduce the maximum retail prices (MRP) after introduction of VAT though there was substantial reduction of tax rates.
The benefit of Rs. 40 Crore which should have been passed on to the consumer was consumed by the manufacturer and the dealers across the VAT chain. The dealers have undoubtedly enriched themselves at the cost of the common man.”
So, the history may repeat again, if there are no strict provisions & rules to tackle such situations.
EXAMPLE:
Let us learn through figures, the impact of GST, if Anti Profiteering provisions are not made:
Cost sheet of a VAT Dealer under Current Regime
Many of us would have come to know that, in 17th GST council meeting held yesterday (18th June 2017) , the Council has approved Anti-Profiteering Rules for easy mechanism of GST.
What is the reason for creating such provisions & rules..?
Is it necessary......?
Let us go into details...:-
History & Background:
If we go back to days when GST was implemented in various countries, it was led to inflationary conditions.
But the question is, since rates declared by government are more or less equal to rates under current regime., then why inflation arises..?
the answer is the effective rate of tax at the consumer level gets changed immediately at the time of
implementation, whereas industry takes time to pass on benefit(s) accrued to it to the consumer level due to many reasons such as:
1.Unawareness about benefits available
2. Lack of clarity on interpretational issues etc.
3. It may be intentional in monopolistic market whereby industry wants to increase its profit by maintaining its selling price and pocketing whole of the benefits.
Study on Implementation of VAT:
Comptroller and Auditor General of India conducted a national study on ‘Implementation of Value added Tax in India’ and released Study Report named ‘Lessons for transition to Goods and Services
Tax’ in June 2010. Relevant extracts form the report are as under:
"The white paper was sanguine that implementation of VAT will bring down the prices of goods due to rationalization of tax rates and abolition of cascading tax effects in the legacy systems. But
there was no system to monitor this impact and ensure that the benefits were indeed being passed on to the common man.
We selected a basket of goods and checked the records of 13 manufacturers in a state in three initial months of implementation of VAT, to check its impact on prices.
We found that manufacturers did not reduce the maximum retail prices (MRP) after introduction of VAT though there was substantial reduction of tax rates.
The benefit of Rs. 40 Crore which should have been passed on to the consumer was consumed by the manufacturer and the dealers across the VAT chain. The dealers have undoubtedly enriched themselves at the cost of the common man.”
So, the history may repeat again, if there are no strict provisions & rules to tackle such situations.
EXAMPLE:
Let us learn through figures, the impact of GST, if Anti Profiteering provisions are not made:
Cost sheet of a VAT Dealer under Current Regime
Cost sheet of a VAT Dealer under GST Regime ( If Anti Profiteering provisions are not made i.e., IF THE SAME PRICE MAINTAINED)
Cost sheet of the VAT Dealer under GST Regime ( If Anti Profiteering applies)
If we look at the above examples, Cost to the consumer is lower in 3rd Case.
I will discuss the provisions & rules of Anti - Profiteering in upcoming sessions, Any queries or doubts are always welcome.
Regards
Kumara Swamy
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