India Economy

The Great Indian ‘pricing’ trick in GST!

PRITAM MAHURE | Updated on January 12, 2018 Published on June 11, 2017

How much reliance can be placed on the guidelines as they do not go into specifics?

GST legislation contains anti-profiteering clause that mandates manufacturers and others in the supply chain to pass on the benefits during the transition to GST regime, to the consumers. In this regard, since May 22, 2017, the Central Board of Excise and Customs (CBEC) has issued four press releases (PR) highlighting likely industry/ product-wise benefits for eight products such as cement, medicaments etc and two services — telecom and entertainment.

These press releases highlight the benefits in the GST regime, due to either lower tax rates on cement and medicaments or more tax credits being available for telecom sector. These releases come with one or two pages industry-level analysis than detailed researched documents with references to reliable reports. Though, apparently these appear to be simple, still, from a business perspective, they are likely to have wide ramifications.

Revenue, procurement

The first thing to notice is that all eight products and two services covered in the press release are presented as positively impacted due to introduction of GST! Predictably, these being CPI (consumer price index) items, the government expects these sectors/industry to lower the prices. Thus, if PR states that the likely benefit to telecom sector is 2 per cent then it indirectly portrays that the industry should lower the telecom service prices by 2 per cent.

While most of the telecom players may follow the PR, those who are benefited only by 1 per cent may find it challenging to follow the directive, as it will negatively impact their margins. Further, if they don’t follow the directives then these companies will carry the fear of losing market share as well as attracting wrath of authorities. Given this, all the companies whose products are covered in PRs will have to strategically re-visit their pricing policies.

The silver lining is that, in case a taxpayer is procuring any of the products or services for which the CBEC has issued guidelines, then, based on the guideline, the taxpayer may request respective vendors to reduce prices of such product/services. For example, based on the PR on Telecom sector (May 26, 2017), negotiations with leased line provider for 2 per cent price reduction can be initiated.

A few question remains

The larger question that remains to be answered is, how much reliance can be placed on these guidelines as they do not go much into specifics. For eg. while the PR on Medicament (dated May 22, 2017) states that “Medicaments, in general, attract 6 per cent central excise duty and 5 per cent VAT”, it does not mention available abatement in excise, which reduces effective excise rate to 3.60 per cent. Similarly, PR on Telecom sector (May, 26, 2017) states that “As per some estimates, this additional input tax credit would be as much as 2 per cent of the turnover of the telecom industry” and does not provide reliable reference or source of such estimates.

Also, while GST law empowers government to constitute an authority or entrust an existing authority to ensure compliance with anti-profiteering provisions, no such authority has yet been identified.

Further, the validity of CBEC guidelines could itself be questioned by the authority notified later by the government.

More such guidelines are expected to be available in days to come. Herein, while these guidelines will certainly help taxpayers understand high-level implications, still the taxpayers should dive deep into specifics than follow these guidelines as basis before re-jigging prices of products or services.

The writer is a Pune-based Chartered Accountant

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