Need stronger anti-profiteering clause


While most countries in the world were shifting onto a unified tax regime, internal politics in India saw the tax simplification process with Goods and Services Tax (GST) take a back seat for almost 17 years. Things changed from the onset of July 1, 2017 as India embarked on the new GST law. “The ‘One Nation, One Tax’ vision has now been implemented under the GST regime, which fulfills almost all the requirements of a good tax system. As our Finance Minister, Arun Jaitley, puts it, GST is the future.

There are reasons to validate that assertion. GST will integrate 17 indirect taxes like VAT, CST, and service tax under a single tax regime, which can be seamlessly carried forward and set off as tax credits. This provision was earlier not available with many indirect taxes. The creation of a single tax regime as a replacement for multiple indirect taxes and disparate rates across states will also make tax compliance easier for businesses.

Black money in circulation within the economy is also bound to decrease, as consumers buying products can ascertain the value-addition and likely profit margins for vendors from tax credit notes. This could also potentially control overcharging for products and services.

GST will also be applicable to the education sector, which was exempted under the previous tax regime. While some premier institutes continue to be exempted from GST, coaching institutions for competitive exams will feel the brunt with GST of up to 18 per cent. Services like transportation of students, catering, and security provided by institutions from preschool to higher secondary or equivalent have been exempted from any tax, but higher education institutes will have to pay taxes for these services. Students will also have to pay more for laundry, food in hostel mess, medicine, stationery, and other services/products they buy on the campus, as they will all attract a tax of 18 per cent. These are a few issues which will be the bone of contention in the near future.

The biggest danger of the current GST regime lies in the weak anti-profiteering clause. Clause 171 inserted in the GST bill makes it mandatory to pass on the benefits due to tax reduction or from input tax credit to the consumer by way of commensurate reduction in prices. But what if a business charges the full rate from the end-consumer without passing on tax credits on its inputs? This clause further provides for the establishment of an authority against profiteering in order to ensure compliance. While the end-consumer may have some reason to cheer at the news, the industry is still doubtful of its implementation.

One of the major contentions against the anti-profiteering clause is the lack of clarity on rules related to valuation and tax rates. It would have been more logical if the proposed ‘Anti Profiteering Authority’ would have been established before GST was implemented. Legal experts are of the opinion that the provisions of the act regarding the ‘Anti Profiteering Authority’ have lots of loopholes; the penalty has not been passed in the act itself, but instead has been left to be decided by the bureaucracy. This will not be accepted by the courts, and can be struck down on the excuse of excessive delegation.

— Dr Srinivas Shirur, dean, Sharda School of Business Studies 



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