Firms Can Raise Prices After Passing on GST Cuts

Source: livemint

Once companies pass on the benefit of GST rate cuts to customers, they are allowed to raise prices for products and services. They might be able to do this depending on their business cycle without worrying about being caught in the anti-profiteering provision of Goods and Services Tax (GST) law. An official, who is aware of how the National Anti-profiteering Authority (NAA) and its investigative arm work, gave the clarification.

Due to the doubt regarding the law and the recent extension of the NAA’s tenure, many businesses consider that their pricing liberty has been restricted. In addition, there has also been an increase in the penalty for violation of profiteering for specific periods in the past. Many companies are unsure of how long they have to maintain the reduced price to transfer the benefits to consumers. This is because of the fact that there’s a lack of guidelines on how to implement anti-profiteering provisions in the Central GST Act.

Furthermore, the uncertainty could also be worrisome for companies that have faced charges before for profiteering. The law is silent when it comes to determining the period for companies to maintain the reduced after a tax rate cut. Under the GST law, if a business does not pass on the benefits of tax rate reduction or availability of input tax credits to customers, it is considered profiteering.

The freedom to increase the price as per the business cycle may come as a relief to companies, especially large fast-moving consumer goods (FMCG) manufacturers. When there is a tax cut, businesses are required to pass on that benefit to consumers immediately. Afterward, they are at liberty to make price adjustments depending on the market needs. Hence, there is no lock-in period for maintaining reduced prices.

The GST Council prolonged the term of NAA by 2 years in June, which means it will continue to work till the end of 2021. The Council has also decided to impose a penalty of 10% of the profiteered amount on those who pocket the tax benefit indented for consumers.