Anti-profiteering Under GST

1. Corporate Finance Presentation
On
Anti-Profiteering Under GST

2. What is GST?
GST is an Indirect Tax which has replaced many Indirect Taxes in India. The Goods and Service Tax Act was
passed in the Parliament on 29th March 2017. The Act came into effect on 1st July 2017
GST (Goods and Services Tax) is the biggest indirect tax reform of India. GST is a single tax on the supply of
goods and services. It is a destination based tax. GST has subsumed taxes like Central Excise Law, Service
Tax Law, VAT, Entry Tax, Octroi, etc. GST is expected to bring together state economies and improve overall
economic growth of the nation.
GST is a comprehensive indirect tax levy on manufacture, sale and consumption of goods as well as
services at the national level. It will replace all indirect taxes levied on goods and services by states and
Central. Businesses are required to obtain a GST Identification Number in every state they are registered.

3. Why is GST needed in India?
Introduction of GST is considered to be a significant step in the reform of indirect taxation in India. Amalgamating of
various Central and State taxes into a single tax would help mitigate the double taxation, cascading, a multiplicity of taxes,
classification issues, taxable event, etc., and leading to a common national market.
Impact of GST on Indian Economy
GST offers several benefits to our economy. Here are some key advantages:
Create unified common national market for India, giving a boost to Foreign investment and “Make in India” campaign
Boost export and manufacturing activity and leading to substantive economic growth
Uniform SGST and IGST rates to reduce the incentive for tax evasion
Impact of GST on Consumers
GST is also beneficial for consumers. Here is how it impacts the Indian consumers:
Simpler Tax system
Reduction in prices of goods & services due to elimination of cascading
Uniform prices throughout the country
Transparency in taxation system
Increase in employment opportunities

4. Impact of GST on Traders
GST is also has some positive impact on traders. Let’s see how it affects the traders:
Reduction in multiplicity of taxes
Mitigation of cascading/ double taxation through input tax credit
More efficient neutralization of taxes especially for exports
Development of common national market
Simpler tax regime
Fewer rates and exemptions
Distinction between Goods & Services no longer required

5. Corporate finance with GST
Corporate Finance is an area of finance which deals with sources of funding, Capital Structuring, Compliances,
actions which increase value of firm to the shareholder.
Now out of all most important is Compliances because if compliances are not complied it gives negative impact
of the company subsequently resulting in decrease in shareholders value towards firm, which may further affect
sources of funding and ultimately hamper capital structuring.
But What compliance includes??, It not only includes payment of various taxes to the departments or filings of
various returns or disclosing information's to various departments. But also includes something called Anti-
Profiteering.

6. The term “profiteering” means making unreasonably high profits in the course of ordinary trade or business. The
government of India is committed to protecting consumers from profiteering during the implementation of the Goods
and Services Tax (GST) regime.
Anti-profiteering rules are needed as lessons learnt from other countries show that there has been inflation and prices
have increased after GST implementation. For example, Singapore saw a hike in inflation when it introduced GST in 1994.
It makes it more important for Indian administrators to keep tabs on prices after implementation of GST. India is doing
what many countries did: initiate anti-profiteering measures at the retail level to protect consumers from price swindling.
The anti-profiteering rules is-
1. If there is reduction in rate of tax on the supply of goods or services or
2. Benefit of input tax credit is now available under GST
Then a registered person must pass on the benefit by reduction in prices

7. Reduction of Tax Rate in New Tax Regime
For example, eating out has become cheaper under GST (mostly 18%/12% GST as compared to earlier 20.5%). This
benefit must be passed on to the consumers.
Passing of benefit due to reduction of tax rate, in case of supplies exclusive of tax or for immediate services is not a big
challenge. This is because the reduction in tax rate will directly be evidenced by invoices, and the recipient will get
benefit of the rate reduction.
For example, FMCG items are normally sold on MRP basis or some other fixed prices by retailers. If there is any
reduction in rate of tax it has to be passed on to the ultimate recipient. Accordingly, there will be a need to revise MRP
or other prices fixed for such supplies.
However, if GST has a negative impact on the cost, then prices can be increased. For example: If the output supply was
zero-rated in previous regime and also remains zero-rated in GST regime, the business will not get any input tax credit.
If the tax rates are increased, tax under reverse charge imposed etc. then prices will increase.
For example, domestic LPG was exempt from tax under earlier regime. Now they fall under 5% GST. This will result in
an increase in the prices of cooking gas.

8. Benefit of Input Tax Credit
Almost all industries will be affected with respect to passing of benefit due to better credit chain. In most places, be it
service sector, manufacturing, trading, or any specific industry, all are going to get advantage of better flow of input tax
credit except sectors having zero-rated output supply. So overall the expectations of anti-profiteering provisions are
commensurate reduction in prices of supplies.
Now, ITC on all inputs can be adjusted against output tax. These benefits are passed on by them in the form of offers
and discounts. Similarly, many big stores have GST sales and special offers to pass on the benefit.

9. GST profiteering Complaints
The National Anti-profiteering Authority (NAA) has started a helpline to encourage consumers to file
complaints against the companies that are not passing GST rate cut benefits.
The helpline number 011-21400643 will guide the consumer to register their complaints, provide information
and resolve queries related to profiteering under the Goods and Service Tax Laws.