GST pricing diktat: Didn't govt indulge in profiteering too by not cutting petroleum prices?


Restaurants have become the favorite whipping boys of consumers and governments thanks to their ubiquitous presence and easy access by hoi polloi. GST rate has come down to a soft 5 percent from 18 percent and 12 percent respectively for AC and non-AC restaurants from 15th November 2017 but they are by and large in no mood to humor them with reduced prices for food served or sold. The allegation is the bill after the binge remains the same with wily restaurants jacking up the food prices suitably so that they billed the same amount at the end of the day.

The government’s riposte is to unleash the anti-profiteering regime enshrined in the GST law. The National Anti-profiteering Authority consisting of bureaucrats has been constituted which is girding its loins for the tough job of reading the riot act to traders. But it would be at its wits’ end in ensuring that reduction in input costs thanks to targeting only the value addition, the hallmark of GST, is passed onto the consumers.

Representational image. Reuters.

Representational image. Reuters.

First the moral dilemma. Traders and restaurants can bristle with justified if not self-righteous indignation and ask--- “hey what moral authority you have to pontificate about profiteering when you have over the years not reduced petroleum prices in tune with fall in the international crude prices? Government can of course say with a straight face or sheepishly that two wrongs don’t make a right but that would be an admission of guilt. Nor can it say the two situations are not comparable because the fall in oil prices was also a bonanza for the central government which ought to have passed on the benefits to the consumers. Instead it chose to rationalise its act of undue enrichment of the exchequer with specious and plausible arguments. What is sauce for goose cannot be anything else for the gander!

The more important issue is the difficulty in enforcing the anti-profiteering law contained in the GST law. Restaurants have a watertight case because they do not get input tax credit in lieu of the soft tax of 5 percent the government has thrust on them which in any case they are going to collect from consumers. When it is not value added tax but full sales cum service tax (GST), the government cannot accuse them of profiteering because there is no reduction for them in cost of inputs thanks to GST.

And as far as other businesses are concerned, the charge of profiteering will not stick unless the government promulgates a price control order across the board for all commodities and services which is well nigh impossible. Suppose the first one in the chain contributes 20 percent to the ultimate value of goods and pays 12 percent GST, the second one adding 60 percent would pay 12 percent only on the value addition and so on. With the result, the anti-profiteering authority simply cannot pin anyone in the chain with the charge of profiteering. True, input costs have come down thanks to removal of the cascading effect of full taxation at each stage in the earlier regime but that does not oblige any manufacturer to reduce his MRP (maximum retail price) or ultimate selling price.


Profiteering is something to be addressed by the Competition Commission if it finds collusive price fixation or monopoly or oligopoly tendencies in a particular industry like in cement and telecom. But that has got nothing to do with GST. In industries where there is intense competition if not perfect competition, the market can be counted upon to temper the rapacious tendencies of fleecing the customer. And the market leader or wannabe market leader with financial sinews can always indulge in undercutting initially till he is firmly entrenched. In short profiteering is a subset of the market and not of a tax regime. If a demand for a product is elastic either because it is not a necessity or there are substitutes, buyers can vote with their feet and bring the manufacturer to his senses when he indulges in profiteering.


Published Date: Nov 18, 2017 02:08 pm | Updated Date: Nov 18, 2017 02:08 pm



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