GST impact on price fixation: Government guidance missing
Has arrived!! After several breaches of deadlines. Yes, the story was created on July 1, 2017 with the introduction of the GST in India. Finally !! It took 30 years from the beginning, ie when the first baby step of GST was taken by the implementation of MODVAT in 1986-1987? Or we can say 17 years – when, for the first time, a committee was formed to prepare a GST design. Anyway, it really has been a very long trip to live that dream in India.
Introducing GST in India was not an easy task. It was essential that through the federal structure, it would be prudent to reach consensus on the entire GST model between the center and the state. In addition, a great deal of preparatory work has been done by studying the best internal practices around the world. One of these areas relates to disposition versus gain. It is estimated that the GST Council, while examining many issues surrounding the GST, failed to put a lot of time in the provision against profit.
As we know, the anti-speculation provision is first inserted in the GST bill in November 2016. India had no idea what that meant. What the provision against speculation? One section was introduced stating that “any reduction in the tax rate or the delivery of goods or services, or the benefit of input deduction is passed on to the recipient by a proportional reduction of prices.” As has been observed in developed countries when VAT was introduced, economies have witnessed inflation. To avoid this and to provide consumer confidence – that real estate prices will not rise, the government introduced the concept of anti-speculation into the GST.
It is expected that the GST to bring profits to companies by increasing credit and eliminating the cascade effect, that is, the income tax. The likelihood that their activities will not be supported by companies, resulting in public dissatisfaction with this radical reform, are of the greatest concern to the government that can be observed from the various statements of officials. To meet the objective that the final benefit of the GST is passed to the final consumer, the concept of anti-speculation was introduced.
It is obvious that if one expects a particular behavior of the companies, that is to pass the benefits to the consumers, it is important that the underlying legal dispositions are clearly articulated with a specific methodology. Finally, anti-speculation rules were published on June 19, 2017 and were expected to know the steps by the trade and industry to comply with anti-profit provisions. But unfortunately! There was nothing in the methodology to calculate the benefit.
The 1 of July arrived and, to date, there is no clarity as to what companies should do. The unanswered questions are: Should I change my prices on July 1, 2017? And if I do not do it? How do companies calculate the profit resulting from increased lending and reduced rates? Will you calculated it at the company level or at the product level? Is it not a gross profit or profit? Can I add additional expenses incurred due to the GST by calculating the costs and getting the benefit? What about losing in one product category and winning in another category? Can I clean it?
The government should develop a guide on the methodology, including calculation and periodicity to reflect a proportional reduction before the GST is implemented, which is July 1, 2017. The publication of clear guidelines would have helped the industry to comply with the provisions Anti-profit. In case companies can blame themselves if they do not work with their prices due to lack of clarity? Ideally not. It is called, without a doubt, to, without wasting time, the approach of the Government is working on the methodology and clarify the provisions against speculation.