Concept of Anti-profiteering under GST regime
Lakshay Parmar 27 Jan 2020

Concept of Anti-profiteering under GST regime

Goods and Services Tax (GST) is India's first Indirect tax reform. In July 2017, India implemented Goods and Services Tax (GST) to remove the cascading effect of former indirect taxes and create a broader and seamless tax credit system. GST is an indirect tax for the country as a whole, making India one national unified economy. GST is a single tax on goods and services deliveries. It is a destination-based tax that will only be imposed on value added at each point since input tax credits paid at the time of product purchase are available. The final user will therefore only bear the GST paid by the last dealer in the supply chain, with set-off advantages at all earlier stages.


The concept of Anti-Profiteering

If the rate of tax on the supply of goods or services is reduced or the input tax credit benefit is now available under GST, then a registered individual must pass on the benefit by price reductions. The difference in the price of the products due to the tax differences between GST and previous tax regimes, that difference now needs to be communicated further to the consumer by the company. Under the GST system in India, anti-profit laws have been implemented to curb excessive profit by companies and ensure that the benefits are passed on to the consumer through a reduction in the price of the goods/ services


 It seems reasonable for a firm to profit if it is in an industry where its GST rates have dropped.  Profit is, after all, arguably the point of business. But the policy is not simply focused on the needs of individual companies. Rather it wants to protect the economy as a whole of the country. The GST Council, in particular, does not want to see the GST causing inflation. And it thinks this can happen if businesses profit from the system. That's not unfounded fear. They both experienced intense inflation for two years when Australia and Malaysia introduced the GST.


Anti-Profiteering rules

On 18 June 2016 the GST Council announced the anti-profiting rules. It makes it more important for Indian administrators to keep the price tabs after GST is implemented. India is doing what many countries have done: initiating retail-level anti-profit measures to protect consumers from price swindles.

The Anti-Profiteering Authority is allowed to search for unfair price hikes. It also searches for other circumstances in which companies can lower prices. If the authority considers a company has not passed on its GST benefits, the company may be forced to lower its prices. It may also allow the client to repay the savings along with an annual interest of 18 per cent. The guilty business may have to deposit the refund into the Consumer Welfare Fund if the customer is unable to contact him.

Clause 171 has been incorporated into the CGST Act 2017, which states that it is mandatory to pass on the gain to the customer by means of a commensurate price reduction due to the reduction in the tax rate or from the input tax credit.


The aspects on which benefits are passed to the recipient

The regulations mentioned in section-171(1) of the CGST Act allow companies to pass to the customer the profit resulting from:

·         Lowering the GST rate

·         Raising the input tax credit.



Purpose of the Anti-profiteering provision:

The purpose behind the anti-profit provision is to transfer tax benefits on GST in the form of lower prices onto customers. The government argues that it is important for the following reasons:

·         To track inflationary patterns during the initial stages of the implementation of GST and to evaluate and monitor its long-term effects.

·         To examine whether input tax credits or lower tax rates actually lead to a commensurate price reduction.

·          To develop an honest pricing policy that will help retain consumers under the GST scheme.

The anti-profit provision is designed to ensure that any savings arising from the productive credit supply chain and lower taxes eventually reach the final consumers. The impetus behind GST will be lost if it only helps the companies, not the end consumer.


Why are companies having difficulty in complying

Companies that do lots of b2b transactions are worried that the Anti-Profiteering Authority can target them. We want evidence that their vendors comply with the anti-profit rules to protect themselves. Picture a retailer selling a product to a client for an inflated price. The firm is also selling products to its consumers at an increased rate, based on the price of that supply. But the prices are so high as to concern the Anti-Profiteering Agency. Then it launches an enquiry against the company and decides that it is guilty of profiting. But in fact, the problem was due to the vendors of the company.


If you want your vendors to be accredited and they are willing and able to provide it, then you are in luck. If not, remember that you can't control what your salespeople are doing. But you can build transparent, detailed records which show compliance with your own. Keep quality, detailed accounting records to protect yourself in case the Anti-Profiteering Authority contacts you.

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