Talking Point: Enforcing anti-profiteering rules under GST

India can take cues from the Australia and Malaysia experience

The Central Board of Excise and Customs (CBEC) recently issued notices to a McDonald’s outlet, a Honda car dealer, an FMCG trader and other entities after receiving complaints from some aggrieved customers that GST benefits were not passed on to them. As per the law, any benefit accrued due to reduction in tax rate or higher input tax credit is to be passed on to the consumer.

The National Anti-profiteering Authority (NAA) was set up by the Centre for two years to monitor the passage of benefits to the consumers. Experts say that while the anti-profiteering clause acts as a deterrent to entities that attempt to unduly benefit from GST, the Centre should also make sure that the measures do not intimidate the normal functioning and pricing decisions of the entities.

Australia and Malaysia, which migrated to GST, sought to implement anti-profiteering rules to check prices. There are some cues that India can take from their experiences. Indian Inc is still awaiting the guidelines and mechanism from the government on how the profiteering cases will be identified by the authority.


Australia, which was the first country to bring in anti-profiteering rules, had adopted the ‘Net dollar margin’ rule to determine the profiteering conduct of the businesses. That is, if GST caused taxes and costs to fall by $1, then prices should fall by at least $1. If, after taking into account the cost reductions resulting from GST, the costs of a business rose by $1 due to GST, then increase in prices cannot exceed that amount.

Malaysia, which implemented GST on April 1, 2015, used the ‘Net margin method’ to determine profiteering. It says that the net profit margin (in absolute terms) of any company should not exceed the margin on a specified benchmark date — January 1, 2015. After two years, the formula was rejigged to ‘margin percentage’ with reference to margins achieved in the preceding three years. These measures are still in existence in Malaysia with the scope limited to food and beverages.


In Australia, as per the GST final report of the Australian Competition and Consumer Commission (ACCC), ‘price exploitation guidelines’ that had information needed to comply with GST were published with illustrations to provide certainty to businesses in setting prices.

Software tools such as small business cost savings estimator were also introduced to help businessmen determine the change required in the selling price after adjusting the GST benefit. For consumers, ‘Australia’s everyday shopping guide with the GST’, a pocket-sized foldout card with best estimates of how prices of 185 common goods and services would be likely to change was delivered to every household. In addition, monthly supermarket surveys were conducted and special assistance to non-English speakers was also provided.

Anti-profiteering measures in Malaysia were termed administratively difficult and led to numerous litigations. The paper on ‘Anti-profiteering Regulations: Effects on Consumer Prices & Business Margins’ by the Institute of Democracy and Economic Affairs pointed out that the 2015-16 profit control mechanism was anti-competitive in nature.

It stated that the net profit formula used to determine unreasonable high profits was inflexible, forced absorption of input cost and raised the cost of doing business.

The paper was unable to determine whether the anti-profiteering measures were effective in curbing price inflation and suggested a sunset clause in the regulation to help wind it up.

The general view was that the regulations were so invasively used that they impeded the businesses from making net profit more than the profit on January 1, 2015.

From soup to nuts

A Ministry of Consumer Affairs notification states that the increase in price of any product after GST should not be more than the tax increase on that particular product and instructed manufacturers to affix revised price label on the goods manufactured before tax rate revision. It also states that two advertisements about the price change should be carried in one or more newspapers.

The government has issued a TV commercial cautioning customers not to buy products sold above their MRP price, citing GST as the cause.

But for a large demography like India, more momentum is required from the government for seamless flow of benefits. As we see with regard to Australia and Malaysia, before taking anti-profiteering action on any entity, the Centre must specify the guidelines and the grounds on which profiteering conduct is triggered. A proper mechanism should also be in place to avoid unnecessary litigation.

For consumers, detailed instructions have to be made available to help them determine if the price hike is warranted. This will protect consumer interest. Ultimately, the freedom of enterprises in fixing prices shouldn’t be curbed by these rules.

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