Fears that the goods and services tax (GST) would aggravate India’s litigation problem seem to be coming true as far as anti-profiteering goes. The GST Council extended the term of the National Anti-profiteering Authority (NAA) by two years recently.
Considering the number of pending cases and increasing tussle between NAA and numerous companies, this move was largely anticipated. A slew of firms have been accused of failing to pass on the rate-reduction benefits commensurately to end consumers. These include blue-chips such as Hindustan Unilever Ltd, and Procter and Gamble India.
But as experienced in the past with GST, while the intent is good, implementation of related rules has been messy. Tax experts point out that only an extension of NAA’s term, without proper guidelines, doesn’t serve much purpose. What we need is a proper framework to estimate the profiteering amount so that litigation can be avoided.
“Businesses have been looking forward to explicit clarifications on the methodology of computing the profiteering benefits to be passed on, and also on the duration of the anti-profiteering clause, including the sunset of this clause,” said Abhishek Jain, tax partner at EY India.
There are several factors that determine movement in prices including the cost of raw materials and the level of competition. Companies may find it difficult to cut prices on the basis of GST rate cut alone, without accounting for the impact of other factors. Also, one cannot ignore the amount of time and money companies may have to employ to deal with cases of price investigations, which are complex especially for service providers. So, some tax experts are of the view that companies cannot be expected to operate in an environment of controlled pricing forever and that there should be a specific duration for this clause.
But expecting the clause to be done away with completely may be too much. “The duration of the anti-profiteering authority was originally envisaged for two years. However, considering that there have been multiple rate changes after July 2017, it was but obvious that the period would be extended. In a scenario where more rate reductions are expected in future, possibility of a sunset of this clause may not be feasible,” says Anita Rastogi, indirect tax partner at PwC India.
“So far since the GST has been implemented in July 2017, more than 65 orders have been issued by the NAA. Considering that so many rulings have already been passed, it would be ideal if key takeaways arising from such orders are published in a manner which will facilitate the businesses in future,” she adds.
In short, there is long a way to go as far as fine-tuning of anti-profiteering rules are concerned. But at a time when GST revenues continue to fall short of expectations, user-friendly laws would not only lower litigation, but also boost compliance and aid revenue collections.