Hold Back Price Hikes Till GST Rollout: Revenue Secretary Hasmukh Adhia Tells India Inc

Earphones sit on display at a wholesale stall near Manish Market in Mumbai. (Photographer: Dhiraj Singh/Bloomberg)

The government on Monday asked industry to hold back price increases till the Goods and Services Tax (GST) is rolled out from July 1, saying such hikes might later lead to inquiry of balance sheet by a specified authority.

Revenue Secretary Hasmukh Adhia said that anti-profiteering provision in GST laws was essential to ensure that the benefits of reduction in tax incidence is passed on to consumers, and the tax department will persuade the big corporates to not engage in profiteering.

"My suggestion to all of them would be for the time being, till GST is rolled out, if they can hold back price increases. Unless it is a serious issue of cost increase, which they cannot absorb immediately. Otherwise hold on for sometime. But still if you have to absorb your cost and you have to do it then it is a matter of inquiry subsequently," Adhia told television channel CNBC-TV18.

The GST Act includes the provision of setting up an anti-profiteering authority to ensure that companies pass on the benefit of tax reduction to customers.

The authority entrusted with inquiry of anti profiteering they can go into the balance sheet of the companies, they can look at their cost sheets and then decide. It is a matter of inquiry and investigation.

Hasmukh Adhia, Revenue Secretary

The GST Council had last week fitted over 1,200 goods and 500 services in tax bracket of 5, 12, 18 and 28 percent.

The government estimates that despite the higher standard rate of 18 percent, service providers will get input tax credit that will lower the effective incidence of GST to around the current incidence of 15 percent.

Also Read: Tax Rates Before And After GST

"There is going to be reduction in prices of many items. Food grains had a lot of cascading effect, we have put food grains and cereals in zero tax bracket," he said.

The Revenue Secretary said if there is a reduction in the tax incidence its benefits should be passed on to consumers.

We hope that we don't have to operationalise the anti profiteering provision. But, we are already getting reports that companies are jacking up prices. It is human nature to make some profit out of it and so this provision was required, otherwise the calculation of impact on CPI would go haywire.

Hasmukh Adhia, Revenue Secretary

The revenue department estimates that inflation will fall by 2 percent on implementation of Goods and Services Tax (GST) and will create buoyancy in the economy.

Adhia said that the revenue department expects that sectors which have large retail competition, there anti- profiteering provisions will not apply and the department will come up with some clarity on how profiteering would be judged.

Also Read: GST Countdown: ‘Leasing Will Become An Emerging Opportunity'

The tax department will engage with large corporates to persuade them that they should not indulge in profiteering.

"We hope to bring in these rules as early as possible," he said.

Adhia further said GST Council may mull increasing number of items on which cess is levied if the government falls short of compensation fund for states.

The GST Council has decided to impose cess on 55 items which are considered luxury or demerit goods to compensate the loss states would suffer on account of GST implementation.