Wednesday, 21 June 2017

Are half-baked anti-Profiteering rules a Nightmare in the Making?

In the current format, the government’s anti-profiteering rules on the goods and services tax (GST) raise more questions than answers. While the intent is to curtail inflation post-GST implementation, the notification suffers from a lamentable lack of clarity on many aspects, increasing uncertainty for businesses.

To begin with, the law would be applicable to all businesses irrespective of their nature or revenue. Since businesses are already struggling to brace for the 1 July deadline, tax experts say it would have been better if these provisions were restricted to those having oligopolistic markets or ones where a significant inflationary spiral is expected due to GST.

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“The concern at this point in time is whether the sweeping provisions provided in the law can be effectively enforced without affecting business confidence. Also, every reduction in tax rates or increase in input tax credit may not lead to a corresponding reduction in prices as there could be simultaneous upward movement of costs of raw material or forex swings,” said M.S. Mani, senior director (indirect tax) at advisory firm Deloitte India.

There is no clear timeline that has been provided for the implementation of the law. Most importantly, there is no mention whether the mechanism for implementing anti-profiteering measures will be product-based or entity based. The rules only talk about the composition of an anti-profiteering committee and that it has the power to determine the methodology and procedure.

Globally, various economic factors like supply and demand conditions, cost structure of the supplier, and geographical location of the marketplace is considered to determine this mechanism. For instance, in Malaysia, the net profit margin methodology is used.

Anti-profiteering has not yielded the desired results in some countries where it was adopted. It proved to be a disaster in Malaysia as it is said to have been misused by tax officials, which led to tax terrorism.

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