New Delhi: Industry body FICCI (Federation of Indian Chambers of Commerce and Industry) has urged the government to abolish the anti-profiteering provisions under the Goods and Services Tax (GST) law, arguing that market forces should be allowed to determine prices of goods and services without regulatory intervention.
The suggestion has been made as part of FICCI’s pre-Budget recommendations submitted to the Finance Ministry for consideration in the Union Budget for FY22.
What Are Anti-profiteering Provisions?
When the GST regime was rolled out in 2017, the government included a clause to prevent companies from profiteering. This meant that if the GST rate on a particular good or service was reduced, businesses were required to pass on the benefit of the reduced tax rate to consumers by lowering the selling price.
To enforce this, the government set up the National Anti-profiteering Authority (NAA), empowered to investigate complaints and impose penalties on companies that failed to pass on tax benefits. Over the past few years, the NAA has taken action against several high-profile firms including Samsung, P&G, McDonald’s, and others for not reducing prices in line with lower GST rates.
Why FICCI Wants It Scrapped
In its submission, FICCI pointed out that:
- The NAA was originally envisioned as a temporary body with a tenure of two years, meant only to ensure smooth transition into the new GST regime.
- With GST now more than four years old and “largely settled,” businesses believe that price-setting should be left to free-market dynamics rather than being controlled by an external authority.
- The lack of clear guidelines on how anti-profiteering provisions should be implemented has led to ambiguity and inconsistency, creating compliance challenges for industry players.
FICCI therefore recommended that the anti-profiteering provisions be discontinued prospectively (i.e., not applied to future cases).
The Current Reality
Despite FICCI’s demand, the abolition of NAA appears unlikely in the near term. Several factors explain this:
- GST rate structure remains unsettled: The GST Council is still working to resolve issues such as the inverted duty structure (where input taxes are higher than output taxes) across several product categories. Until these anomalies are fixed, the government is unlikely to give up oversight on pricing.
- Consumer protection: The anti-profiteering mechanism is seen as a consumer-friendly safeguard to ensure that businesses do not unfairly pocket tax benefits meant for end-users.
- State consensus required: Any decision to discontinue NAA or dilute its powers would require approval from the GST Council, which includes both the Centre and state governments. Given differing revenue priorities, a consensus is hard to achieve quickly.
Industry’s Argument
FICCI maintains that continuing with anti-profiteering provisions adds uncertainty to the business environment, especially when guidelines on how to calculate “profiteering” remain vague. Businesses argue that pricing decisions involve multiple factors such as raw material costs, marketing expenses, inflation, and competition — and cannot be based solely on tax changes.
In other words, even if GST rates fall, companies may not be able to proportionately reduce prices if other costs are rising. Strict enforcement by the NAA, therefore, creates fear and compliance burden for businesses, especially in sectors like FMCG, hospitality, and electronics, where pricing is highly dynamic.
