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GST rates and anti-profiteering
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Over the last two months, the centre and over 15 states have passed laws to levy the Goods and Services Tax (GST). Under these laws, tax rates recommended by the GST Council will be notified by the government. The Council met in Srinagar last week to approve rates for various items. Following this decision, the government has indicated that it may invoke provisions under the GST laws to monitor prices of goods and services.[1] This will be done by setting up an anti-profiteering authority to ensure that reduction in tax rates under GST results in a fall in prices of goods and services. In this context, we look at the rates approved by the GST Council, and the role of the proposed authority to ensure that prices of various items do not increase under GST.
Q. What are the tax rates that have been approved by the Council?
The Council has classified various items under five different tax rates: (i) 5%, (ii) 12%, (iii) 18%, (iv) 28%, and (v) 28% with an additional GST compensation cess (see Table 1).[2],[3],[4] While tax rates for most of the goods and services have been approved by the Council, rates for some remaining items such as biscuits, textiles, footwear, and precious metals are expected to be decided in its next meeting on June 3, 2017.
Table 1: Tax rates for goods and services as approved by the GST Council
5% | 12% | 18% | 28% | 28% + Cess | |
---|---|---|---|---|---|
Goods |
|
|
|
|
|
Services |
|
|
|
|
Source: GST Council Press Release, Central Board for Excise and Customs.
Q. Will GST apply on all goods and services?
No, certain items such as alcohol for human consumption, and petroleum products such as petrol, diesel and natural gas will be exempt under GST. In addition to these, the GST Council has also classified certain items under the 0% tax rate, implying that GST will not be levied on them. This list includes items of daily use such as wheat, rice, milk, eggs, fresh vegetables, meat and fish. Some services such as education and healthcare will also be exempt under GST.
Q. How will GST impact prices of goods and services?
GST subsumes various indirect taxes and seeks to reduce cascading of taxes (tax on tax). With greater efficiency in the supply of products, enhanced flow of tax credits, removal of border check posts, and changes in tax rates, prices of goods and services may come down.[5],[6],[7] Mr Arun Jaitley recently stated that the Council has classified several items under lower tax rates, when compared to the current system.[8]
However, since some tax rates such as VAT currently vary across states, the real impact of GST rates on prices may become clear only after its roll-out. For example, at present VAT rates on smart phones range between 5-15% across states. Under GST they will be taxed at 12%.[9] As a result while phones may become marginally cheaper in some states, their prices may go up in some others.
Q. What happens if tax rates come down but companies don’t reduce prices?
Few people such as the Union Revenue Secretary and Finance Ministers of Kerala and Jammu and Kashmir have expressed concerns that companies may not lower their prices despite a fall in tax rates, in order to increase their profits. The Revenue Secretary also stated that the government had received reports of few businesses increasing their product prices in anticipation of GST.[10]
To take care of such cases, the GST laws contain a provision which allows the centre to constitute an anti-profiteering authority. The authority will ensure that a reduction in tax rates under GST is passed on to the consumers. Specific powers and functions of the authority will be specified by the GST Council.[11],[12]
Q. Are there any existing mechanisms to regulate pricing of products?
Various laws have been enacted over the years to control the pricing of essential items, or check for unfair market practices. For example, the Essential Commodities Act, 1955 controls the price of certain necessary items such as medicines, food items and fertilisers.[13]
Parliament has also created statutory authorities like the Competition Commission of India to check against unfair trade practices such as cartelisation by businesses to inflate prices of goods. Regulators, such as the National Pharmaceutical Pricing Authority, are also responsible for regulating prices for items in their sectors.
Q. Could there be some challenges in implementing this mechanism?
To fulfil its mandate, the anti-profiteering authority could get involved in determining prices of various items. This may even require going through the balance sheets and finances of various companies. Some argue that this is against the idea of prices being determined by market forces of demand and supply.[14]
Another aspect to consider here is that the price of items is dependent on a combination of factors, in addition to applicable taxes. These include the cost of raw material, technology used by businesses, distribution channels, or competition in the market.
Imagine a case where the GST rate on a category of cars has come down from the current levels, but rising global prices of raw material such as steel have forced a manufacturer to increase prices. Given the mandate of the authority to ensure passing of lower tax rates to consumers, will it also consider the impact of rising input costs deciding the price of an item? Since factor costs keep fluctuating, in some cases the authority may find it difficult to evaluate the pricing decision of a business.
Q. Have other countries tried to introduce similar anti-profiteering frameworks?
Some countries such as Malaysia have in the past introduced laws to check if companies were making unreasonably high profits after the roll-out of GST.[15] While the law was supposed to remain in force for a limited period, the deadline has been extended a few times. In Australia, during the roll out of GST in the early 2000s, an existing authority was entrusted with the role of taking action against businesses that unreasonably increased prices.[16] The authority also put in place a strategy to raise consumer awareness about the available recourse in cases of price exploitation.
With rates for various items being approved, and the government considering a mechanism to ensure that any inflationary impact is minimised, the focus now shifts to the implementation of GST. This includes operationalisation of the GST Network, and notification of rules relating to registration under GST and payment of tax. The weeks ahead will be crucial for the authorities and various taxpayers in the country to ensure that GST is successfully rolled out from July 1, 2017.
[1] After fixing rates, GST Council to now focus on price behaviour of companies, The Hindustan Times, Ma 22, 2017, http://www.hindustantimes.com/business-news/after-fixing-rates-gst-council-to-now-focus-on-price-behaviour-of-companies/story-fRsAFsfEofPxMe2IXnXIMN.html.
[2] GST Rate Schedule for Goods, Central Board of Excise and Customs, GST Council, May 18, 2017, http://www.cbec.gov.in/resources//htdocs-cbec/gst/chapter-wise-rate-wise-gst-schedule-18.05.2017.pdf.
[3] GST Compensation Cess Rates for different supplies, GST Council, Central Board of Excise and Customs, May 18, 2017, http://www.cbec.gov.in/resources//htdocs-cbec/gst/gst-compensation-cess-rates-18.05.2017.pdf.
[4] Schedule of GST Rates for Services as approved by GST Council, GST Council, Central Board of Excise and Customs, May 19, 2017, http://www.cbec.gov.in/resources//htdocs-cbec/gst/Schedule%20of%20GST%20rates%20for%20services.pdf.
[5] GST rate impact: Here’s how the new tax can carry a greater punch, The Financial Express, May 24, 2017, http://www.financialexpress.com/economy/gst-rate-impact-heres-how-the-new-tax-can-carry-a-greater-punch/682762/.
[6] “So far, the GST Council has got it right”, The Hindu Business Line, May 22, 2017, http://www.thehindubusinessline.com/opinion/the-gst-council-has-got-it-right/article9709906.ece.
[7] “GST to cut inflation by 2%, create buoyancy in economy: Hasmukh Adhia”, The Times of India, May 21, 2017, http://timesofindia.indiatimes.com/business/india-business/gst-to-cut-inflation-by-2-create-buoyancy-in-economy-hasmukh-adhia/articleshow/58772448.cms.
[8] GST rate: New tax to reduce prices of most goods, from milk, coal to FMCG goods, The Financial Express, May 19, 2017, http://www.financialexpress.com/economy/gst-rate-new-tax-to-reduce-prices-of-most-goods-from-milk-coal-to-fmcg-goods/675722/.
[9] “Goods and Services Tax (GST) will lead to lower tax burden in several commodities including packaged cement, Medicaments, Smart phones, and medical devices, including surgical instruments”, Press Information Bureau, Ministry of Finance, May 23, 2017.
[10] “GST Townhall: Main concern is consumer education, says Adhia”, Live Mint, May 24, 2017.
[11] The Central Goods and Services Tax Act, 2017, http://www.prsindia.org/uploads/media/GST,%202017/Central%20GST%20Act,%202017.pdf.
[12] Rajasthan Goods and Services Tax Bill, 2017; Madhya Pradesh Goods and Services Tax Bill, 2017; Uttar Pradesh Goods and Services Tax Bill, 2017; Maharashtra Goods and Services Tax Bill, 2017.
[13] The Essential Commodities Act, 1955.
[14] “GST rollout: Anti-profiteering law could be the new face of tax terror”, The Financial Express, May 23, 2017, http://www.financialexpress.com/opinion/gst-rollout-anti-profiteering-law-could-be-the-new-face-of-tax-terror/680850/.
[15] Price Control Anti-Profiteering Act 2011, Malaysia.
[16] ACCC oversight of pricing responses to the introduction of the new tax system, Australia Competition and Consumer Commission, January 2003, https://www.accc.gov.au/system/files/GST%20final%20report.pdf.
The Arms (Amendment) Bill, 2019 was introduced in Lok Sabha recently and is scheduled to be passed in this Winter Session. The Bill amends the Arms Act, 1959 which deals with the regulation of arms in India. The Act defines arms to include firearms, swords, and anti-aircraft missiles. The Statement of Objects and Reasons of the Bill noted that law enforcement agencies have indicated a growing connection between the possession of illegal firearms and criminal activities. In this context, the Bill seeks to reduce the number of firearms allowed per person, and increases punishments for certain offences under the Act. The Bill also introduces new categories of offences. In this post, we explain key provisions of the Bill.
How many firearms are allowed per person?
The Arms Act, 1959 allows a person to have three licenced firearms. The Bill proposes to reduce this to one firearm per person. This would also include any firearms that may have been given as inheritance or as an heirloom. Excess firearms must be deposited at the nearest police station or licensed arms dealer within one year of the passing of the Bill. The Bill also extends the duration of a licence from three years to five years.
Note that in 2017, 63,219 firearms were seized from across India under the Arms Act, 1959. Out of these, only 3,525 (5.5%) were licenced firearms. Further, 36,292 cases involving firearms were registered under the Act in 2017, of which only 419 (1.1%) cases involved licenced firearms. [1] This trend persisted even at the level of specific crimes, where only 8.5% of the murders committed using firearms involved licenced firearms. [2]
What changes are being made to existing offences?
Presently, the Act bans manufacture, sale, use, transfer, conversion, testing or proofing of firearms without license. The Bill additionally prohibits obtaining or procuring un-licensed firearms, and the conversion of one category of firearms to another without a license. The latter includes any modifications done to enhance the performance of a firearm.
The Bill also proposes increased punishments for several existing offences. For example, the Act specifies the punishment for: (i) dealing in un-licensed firearms, including their manufacture, procurement, sale, transfer, conversion, (ii) the shortening or conversion of a firearm without a licence, and (iii) import or export of banned firearms. The punishment for these offences currently is between three years and seven years, along with a fine. The Bill increases the minimum punishment to seven years and the maximum to life imprisonment.
The Act also punishes dealing in prohibited firearms (such as automatic and semi-automatic assault rifles) without a license, with imprisonment between seven years and life imprisonment, along with fine. The Bill increases the minimum punishment from seven years to 10 years. Additionally, the punishment for cases in which the usage of prohibited arms results in the death of a person has been revised. The punishment has been updated from the existing punishment of death penalty to allow for death penalty or life imprisonment, along with a fine.
Are there any new offences being introduced?
The Bill adds certain news offences. For example, forcefully taking a firearm from police or armed forces has been made a crime under the Bill. The punishment for doing so is imprisonment between 10 years and life imprisonment, along with a fine. Additionally, the Bill punishes the negligent use of firearms, such as celebratory gunfire during weddings or religious ceremonies which endanger human life or personal safety of others. The proposed punishment in this case is imprisonment of up to two years, or a fine of up to one lakh rupees, or both.
The Bill also adds a definition of ‘illicit trafficking’. It is defined to include the trade, acquisition, sale of firearms or ammunitions into or out of India where the firearms are either not marked as per the Act or violate the provisions of the Act. The Bill makes illicit trafficking punishable with imprisonment between 10 years and life, along with a fine.
Does the Bill address issues of organised crime?
The Bill also introduces a definition of ‘organised crime’. ‘Organised crime’ has been defined as continued unlawful activity by a person, either as a member of a syndicate or on its behalf, by using unlawful means, such as violence or coercion, to gain economic or other benefits. An organised crime syndicate refers to two or more persons committing organised crime.
The Bill introduces harsher punishments for members of an organised crime syndicate. For example, for the possession of an unlicensed firearm, the minimum term for an individual would be seven years, extendable to life imprisonment and liable to a fine. However, the possession of unlicensed firearms by a member of a syndicate will be punishable with imprisonment between 10 years and life, along with a fine. This increased punishment also applies to non-members contravening provisions of the Act on behalf of a syndicate.
[1] Crime in India 2017, National Crime Records Bureau, October 21, 2019, http://ncrb.gov.in/StatPublications/CII/CII2017/pdfs/CII2017-Full.pdf.
[2] Crime in India 2016, National Crime Records Bureau, October 10, 2017, http://ncrb.gov.in/StatPublications/CII/CII2016/pdfs/NEWPDFs/Crime%20in%20India%20-%202016%20Complete%20PDF%20291117.pdf.
The Right to Information (Amendment) Act, 2019 amended the Right to Information Act, 2005. The RTI Act, 2005 specified the tenure, terms of service and salaries of the Chief Information Commissioner (CIC) and Information Commissioners (ICs) at the central and state levels, in the parent law. The RTI (Amendment) Act, 2019 removed these provisions and stated that the central government will notify the term and quantum of salary through rules.[1],[2]
The Right to Information Rules, 2019 were notified on October 24, 2019.[3] These rules set out the tenure, terms of service and salaries of the CIC and ICs at the state and central levels. Table 1 compares the provisions related to the tenure and salary of the CIC and ICs under the Right to Information Act, 2005 and the Right to Information Rules, 2019
Table 1: Comparison of the provisions of the Right to Information Act, 2005 and the Right to Information Rules, 2019
Provision |
RTI Act, 2005 |
RTI Rules, 2019 |
Term |
The CIC and ICs (at the central and state level) will hold office for a term of five years. |
The CIC and ICs (at the central and state level) will hold office for a term of three years. |
Salary |
The salary of the CIC and ICs (at the central level) will be equivalent to the salary paid to the Chief Election Commissioner and Election Commissioners (Rs 2,50,000 per month) Similarly, the salary of the CIC and ICs (at the state level) will be equivalent to the salary paid to the Election Commissioners (Rs 2,50,000 per month) and the Chief Secretary to the state government (Rs 2,25,000 per month), respectively. |
The CIC and ICs (at the central level) shall receive a pay of Rs. 2,50,000 and Rs. 2,25,000 per month, respectively.
CICs and ICs (at the state level) shall receive a pay of Rs. 2,25,000 per month. |
Source: The Right to Information (Term of Office, Salaries, Allowances and Other Terms and Conditions of Service of Chief Information Commissioner, Information Commissioners in the Central Information Commission, State Chief Information Commissioner and State Information Commissioners in the State Information Commission) Rules, 2019; The High Court and the Supreme Court Judges (Salaries and Conditions of Service) Amendment Act, 2017; Indian Administrative Services (Pay) Rules, 2016; PRS.
[1] Right to Information Act, 2005, https://rti.gov.in/rti-act.pdf.
[2] Right to Information (Amendment Act), 2019, file:///C:/Users/Dell/Downloads/The%20Right%20to%20Information%20(Amendment)%20Bill,%202019%20Text.pdf.
[3] The Right to Information (Term of Office, Salaries, Allowances and Other Terms and Conditions of Service of Chief Information Commissioner, Information Commissioners in the Central Information Commission, State Chief Information Commissioner and State Information Commissioners in the State Information Commission) Rules, 2019, http://egazette.nic.in/WriteReadData/2019/213438.pdf.
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