India’s antiprofiteering officials will look into complaints alleging that many consumer goods companies have not fully passed on a recent reduction in the goods and services tax on their products to consumers. According to the complaints, some makers of refrigerators, televisions, washing machines and water heaters haven’t reduced the prices of their products to reflect the cut in GST to 18% from 28%. However, white goods companies said the entire benefit has been passed on.
“We have received many complaints... These will be looked into as per the process,” said a senior official with the National Anti-Profiteering Authority, the government entity that ensures traders don’t realise unfair gains by charging high prices from consumers in the name of GST. The GST Council, which administers the tax, cut the rate for a host of white goods to 18% from 28% on July 21. Companies were directed to affix stickers with the new prices on old stock to ensure that the tax cuts are passed on to consumers.
“The government took a hit in taxes to make products cheaper to the public... Companies cannot pocket it,” the official said. The rate cut was estimated to cost the government exchequer almost ?7,000 crore. The allegations are that companies are not passing on the full tax benefit or limiting it to only some products. The National Anti-Profiteering Authority, in an order issued in the case of a Rajasthan-based distributor of Hindustan Lever, said earlier this month that the benefit of a tax cut needs to be passed on at the product level – every product must become cheaper.
However, white goods makers claimed they have passed on the entire reduction in GST on appliances and other products, ensuring that there has been no gain for either manufacturers or dealers. “The entire 10 percentage point GST drop on appliances has been passed on to consumers, whereby the net impact on prices was a drop by 7.8%,” said Godrej Appliances business head Kamal Nandi. A senior industry executive said the net price drop for consumers is lower than the tax reduction because the basic rate of a product, which includes the company price and dealer margin, does not change.
If a product’s basic price is ?100, adding 28% GST would make its maximum retail price (MRP) ?128. When tax is reduced to 18%, the MRP becomes ?118, a decline of 7.8%. Companies that announced a price cut immediately after the GST rate was reduced wrote to retailers and circulated the new price list. “We printed posters about the price cut, which were put up in the shop fronts and even advertised to consumers about it,” another senior industry executive said.
“All possible measures were taken to ensure that the full benefit of GST drop is passed on to consumers. Even new pricing stickers were labelled on the stock lying in stores, which clearly specified the old and new MRP. All branch offices were put to action to ensure all stock lying with trade – even at the smallest of retailers – gets the new price label,” the executive said.
The Economics Time, 12th September 2018
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