GST impact and anti profiteering law: Kerala wants deterrent clause deployed now

Financial Express By M Sarita Varma July 6, 2017 7:57 AM

Even as it doesn’t appear the Centre’s intent to invoke the anti-profiteering provision under the goods and services tax (GST) from day one, at least one state demanded that the dreaded tool be wielded without delay.

Kerala’s finance minister TM Thomas Isaac has written to Union finance minister Arun Jaitley, who is also the chairman of the GST Council, highlighting the need for using the provision against several restaurants and a section of traders in the state.

Even as it doesn’t appear the Centre’s intent to invoke the anti-profiteering provision under the goods and services tax (GST) from day one, at least one state demanded that the dreaded tool be wielded without delay. Kerala’s finance minister TM Thomas Isaac has written to Union finance minister Arun Jaitley, who is also the chairman of the GST Council, highlighting the need for using the provision against several restaurants and a section of traders in the state. These businesses have raised prices after the GST roll-out on July 1, while tax incidences on them have either come down or remained the same. Some have even imposed the GST on the pre-GST prices, obviously a wrong practice since the previous prices were inclusive of taxes that are now subsumed in GST.

Isaac’s suggestion, however, cannot be acted upon quickly as the administrative systems for a crackdown on profiteering are not in place. The designated National Anti-Profiteering Authority is yet to take shape and so are the proposed standing committee and state-level screening committees.

While the relevant provision says that “any reduction in rate of tax or any supply of goods or services or the benefit of input tax credit shall be passed on by way of commensurate reduction in prices”, no methodology has been evolved to compute the undue benefit cornered by the businesses. The anti-profiteering provision provides for penalties and even cancellation of the registration of the business concerned.

“Many traders are making profit by imposing GST on the pre-GST price. Hotels and restaurants are doing this the most. Instead of giving discounts because of reduction of tax or at least keeping the price at the same level, they have increased the prices,” Isaac wrote in a letter to Jaitley. He added that although the prices of most commodities should ideally have come down under GST, that was not to be and so the end consumer was far from getting the benefit of the new tax system that militates against cascading of taxes. Earlier, talks between restaurant owners and the state government on the pricing issue had hit a deadlock.

Isaac also reminded Jaitley of the Kerala government’s insistence at the GST Council on incorporating anti-profiteering clause in the law and also on publishing the old and the new tax rates. The hotel and restaurant businesses in the state have added 12-18% GST on the pre-GST prices of food items, making these costlier to the consumers, he said. This has created a negative impression of GST among the common people, Isaac noted. Taking a cue from restaurants, other traders could also hike prices in the coming days, triggering inflation, the Kerala finance minister said, asking for the GST Council chairman’s timely intervention. “First of all, the Centre should publish a price matrix immediately. Simultaneously, it should constitute an anti-profiteering authority and state-level screening committees,” he said.

Meanwhile, restaurant owners in Kerala are in a defiant mood. They have asked the state government to forgo its share of GST on food items so that the consumers are not burdened. “Could the state government arrest the (skyrocketing) price of chicken, as the GST shift took place?” asked G Jayapal, general secretary, Kerala Hotel and Restaurant Association (KHRA).

Their argument is that the input prices have gone up post-GST. Moideenkutty Haji, president, KHRA, said, “On implementing GST, 14.5% purchase tax on chicken was waived. However, the chicken traders had felt the tax pinch and are levying Rs 30 per kilo.” At least two rounds of talks with the state government had failed to produce results, forcing Isaac to reach out to Jaitley for the anti-profiteering clause crackdown.

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