Corporate profiteering to be in focus at GST meet

The ministerial panel led by Karnataka chief minister Basavaraj Bommai working on the restructuring of goods and services tax (GST) rates will examine whether companies passed on rate cuts in the past, before recommending changes to tax slabs.

The idea is to ensure that fresh rate changes are framed without causing undue hardship to consumers, said a person familiar with the discussions in the ministerial panel.

A key concern of the panel is alleged profiteering by firms. The panel is apprehensive that the benefits of tax cuts might be pocketed by some businesses, while the burden of any increase will have to be borne by consumers. “A study of past tax rate reductions, especially on products like fridges and air-conditioners, is needed before GST rate rationalization proposals are finalized. It is feared that many companies profiteered in the past. A rate change without studying this could pose hardship for consumers,” the person said on condition of anonymity. The panel will analyze the pricing behaviour of companies making around 25 products.

Emails sent to the spokesperson for the finance ministry and the GST Council secretariat on Monday seeking comments on the story remained unanswered at the time of publishing.

Profiteering concerns are likely to play a major role in the rate rationalization exercise. For example, merging the 12% and 18% slabs to a middle point, say 15%, will be studied carefully as the merger would mean that items in the 18% slab would see a tax reduction, which may not reach consumers, while they may have to bear the burden of an increase for items now taxed at 12%.

The proposals before the committee also include a possible increase of the 5% rate to 8%, shifting some items in the 12% slab to 8%, and raising the 18% slab to 20%, said a second person who also requested anonymity. The proposals are being considered, the first person said.

The National Anti-Profiteering Authority (NAA) earlier observed that in certain instances, the amount of tax paid by consumers increased after a tax cut because some companies raised the base price, putting a higher tax burden on consumers.

The government gave the NAA extension till November this year, after which the adjudication of profiteering under GST laws will be handled by the Competition Commission of India.

The ministerial panel’s examination of the pricing behaviour of companies for tax rate rationalization is unlikely to become a regulatory action against businesses.

In many industries with long supply chains, changing prices immediately after tax rate changes has been a challenge for businesses on the goods that have already left the factory.

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