The
GST anti-profiteering clause requires firms to pass on benefit of
reduced tax rates by slashing prices, bringing an element of ambiguity.
Photo: Mint
New Delhi: With input costs remaining
high, manufacturers of consumer packaged goods have had little choice so
far but to increase prices and protect their margins. But with
anti-profiteering provisions of the goods and services tax (GST) now in
place, increasing prices has become tricky.
This clause requires
companies to pass on the benefit of reduced tax rates by slashing their
prices,
bringing an element of ambiguity.
As Anita Rastogi,
indirect tax partner at PwC India pointed out, the statutory provisions
of anti-profiteering require “commensurate” benefit to be passed on, and
not “equivalent” benefit of the change in tax rate.
The word
“commensurate” as used under the GST law intends to take overall facts
and circumstances into its consideration for passing on the benefit,
which has not been considered while passing various orders passed by the
authority, she said.
“Orders issued recently by
the anti-profiteering authority have far-reaching implications because
discounts are not considered as reduction in price and decrease in
margins are not a valid ground for passing on the benefit of tax
reduction to the consumers,” she added. As a result, companies are being
cautious with their pricing strategies.
For instance, Hindustan
Unilever Ltd (HUL) is increasing prices on selected products to make up
for the reduced prices in some others. “Increasing prices and even
reducing prices following GST has been a challenge,” Sanjiv Mehta,
chairman and managing director, HUL said. Mehta said HUL will take price
increases selectively.
According to Mehta, the company has been
transparent and has passed on all the benefits to the customers and
shared with the government how it has passed on the benefits—through
grammage increase and price decrease.
It should be noted that HUL
has been accused by Directorate General of Anti-profiteering of not
passing on the benefits of GST cuts to consumers and making profits of
over ₹400 crore. A ruling on this matter by the National
Anti-Profiteering Authority (NAA) is pending. Godrej Consumer Products
Ltd (GCPL) is facing a similar dilemma.
“It’s an unknown kind of
scenario. GCPL has taken a price increase of 6-12% in its hair colours
portfolio. However, wherever the company has taken price increases they
have kept all the data and can justify the price increases taken to the
last decimal,” V. Srinivasan, chief financial officer and company
secretary, said.
“For us, the quantum of price increases will be
lower than the input cost increases we face. At the end of the day, the
government also has to be pragmatic about the price increases given the
way crude is going. All of us are being cautious on price increases,”
Vivek Gambhir, managing director and chief executive officer, GCPL said.
It’s
not just fast moving consumer goods (FMCG) firms who are in a fix when
it comes to raising prices and complying with the anti-profiteering
clause; paint makers too seem to be struggling with it.
In July,
GST on paints was reduced from 28% to 18%. Despite the cost pressure and
given the anti-profiteering clause, paint companies cut prices by 10%.
However,
in a bid to protect margin erosion, they hiked prices by around 2.5%
effective 1 October and further hikes of 5% are anticipated in months
ahead.
Although B.N. Sharma, chairman of the NAA told a recent
Confederation of Indian Industry event that the NAA is not a price
regulator and that it doesn’t have legislative intent to regulate when
it comes to price hike decisions, consumer goods companies prefer to be
safe rather than sorry.