The goods and services tax (GST) law that has been drafted has a provision that did not get the attention that it deserves. It relates to the anti-profiteering measure in Section 163 which is quoted below: “163. Anti-profiteering Measure (1) The central Government may by law constitute an Authority, or entrust an existing Authority constituted under any law, to examine whether input tax credits availed by any registered taxable person or the reduction in the price on account of any reduction in the tax rate have actually resulted in a commensurate reduction in the price of the said goods and/or services supplied by him.” It is one of the most devastatingly retrograde measures that have been incorporated in the GST law. Because of the intense hullabaloo that went on in the GST Council over the rates of duty and the control by the Centre and the states on assessees, this aspect of the matter must not have gotten the benefit of detailed discussion that it deserved from the GST Council.
This issue has two aspects. One is input credit and the second is reduction in tax.
On the first issue of the input credit, inputs are to be credited as that is the crux of value-added tax (VAT) and GST principle fundamentally. There is no question of reducing price in a commensurate way. The second is the reduction in tax rate. That also is a meaningless proposition as there are so many inputs and they are not used in the same proportion. Price of commodities are fixed or determined by competition in the market and not by rate of tax alone. It also depends on brand value and goodwill of a brand. Let us say that the tax on handmade beedi is reduced. There being so many brands of beedi in the market, the prices will fall due to competition depending on the addiction of people to a brand.
The “anti-profiteering” provision in the proposed GST law will be against the interest of trade and industry. I would further add that the proposal to make an anti-profiteering authority will be a great hurdle in promoting the “ease of business”. It will be nothing sort of a debacle. On enquiry I learnt that 18 per cent profit was tentatively suggested to be the limit above which it will be taken as profiteering in the GST Council. This has not been finalised but even thinking in this line shows how decadent thinking can be.
First, such a provision will take away from a company all desire to reduce cost and become efficient and profitable. Secondly, companies such as Steel Authority of India and Tata Steel, which make profit and losses at different times depending on international demand for steel, will get eliminated if they are not allowed to make profit of any amount when the opportunity comes. Thirdly, it will throttle innovation. No company will invest in research and innovation if they cannot make profit. How will they finance the research, if they do not make sufficiently high profit? Fourthly, a company cannot grow and a country also cannot grow if high investment is not made by either private or government companies, which will not be possible without sufficient profit. And lastly, all start-ups will be ruined as they make no income for long and when they invent something they make a onetime profit of large amount and that too if they succeed at all.
If a company pays all taxes properly and abides by all laws, then how on earth can the government stop it from making any amount of profit? It is known that no other country in the world has this law. Not the US, the UK, Europe, Japan, China, Russia and others. Only Malaysia has it. The empowered committee noted this. Since when has Malaysia become the leader of thoughts in economics to our GST Council? Let me also point out that the Unjust Enrichment law brought in 1989 is still there and this also should be given a decent burial. Section 4 of the Competition Act, 2002, provides for action against abuse of dominant position. This law is good enough and no other controlling law is necessary so as to improve the “ease of business”.
The writer is retired member of the Central Board of Excise & Customs. E-mail: smukher2000@yahoo.com
06TH FEBRUARY,2017, BUSINESS STANDARD, NEW-DELHI
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