The Centre has empowered itself to impose penalties on businesses that fail to pass on the benefits of the new indirect tax regime to consumers in the form of lower prices, triggering concerns in industry about a return to the era of socialist controls and harassment.
It will achieve this through an enabling provision introduced in the model Goods and Services Tax (GST) law, unveiled by the Centre on November, 26.
The revised drafts of the model GST law, as well as the Integrated GST Act and GST (Compensation to the States for loss of revenue) Act — which the government hopes to introduce and pass in this session of Parliament in order to meet its April 1, 2017 deadline for rolling out GST — will now be debated by the GST Council in meetings scheduled on December 2 and 3.
The new proposed GST bills, on which comments have been sought by the Central Board of Excise and Customs under the Finance Ministry’s revenue department, seeks to allay some industry concerns about its implementation by exempting free goods from GST unless they are being supplied to related parties, and treating supplies to special economic zones as ‘zero-rated.’
Securities will be exempted from GST as well as subsidies paid by the Centre and states, while credits will be permitted against payments of excise and counter-veiling duties. However, the new anti-profiteering measure is being seen as a potential dampener as it could lead to more discretion in the hands of the tax authorities.
“I really believe this is a bad idea and harks back to an era of socialism and controls,” Confederation of Indian Industry president Naushad Forbes told The Hindu. “This will open up a whole new opportunity for harassment and make it difficult to do business. The best way of controlling one private entity making undue profits is to introduce competition in that sector instead.”
“The Central government may by law constitute an authority, or entrust an existing authority… to examine whether input tax credits availed by any registered taxable person or the reduction in the price on account of any reduction in the tax rate have actually resulted in a commensurate reduction in the price of the said goods and/or services supplied by him,” section 163 of the proposed model GST law states.
Moreover, this designated authority shall have functions and powers, “including those for imposition of penalty, as may be prescribed in cases where it finds that the price being charges has not been reduced.”
A similar caveat has also been imposed on the credit of excise and counterveiling duties paid on transition stock and such input credits would only be allowed if the benefit is passed on to the recipient.
Provisions relating to anti-profiteering, while aimed at protecting the consumers, might be difficult to implement, said Pratik Jain, partner and leader of the indirect tax practice at PwC.
“The revised draft deals with several aspects on which industry had made representations Amendments with respect to transition stock, input tax credit provisions and FOC supplies address some of the major concerns of the industry,” Mr. Jain said.
While the proposal to treat ‘intangibles’ as services in the earlier draft model GST law has been removed, Mr Jain said that several concerns of the services sector, particularly with respect to single centralized registration and clarity in terms of place of supply rules, have not been adequately addressed.