Anti-profiteering becomes a board issue 
By Team Legistify / 2017-12-01

Have a Legal Issue?

Get connected to the Best Lawyers and Chartered Accountants Near You!


MUMBAI: Anti-profiteering under the goods and services tax (GST) has gone from being a plain costing issue to one that’s worrying board members. Several directors have written to company CFOs and finance teams seeking an update on price reductions under GST, said people aware of the matter.

The government has been actively pushing companies to pass on the benefits of GST, especially after rate reductions earlier this month, and directors don’t want their companies to get caught up in complaints on this score with the anti-profiteering authority about to be established, experts said. On the other hand, they are also concerned about maintaining profitability.
Central Board of Excise and Customs (CBEC) chairperson Vanaja Sarna recently wrote to about 100 consumer goods companies regarding GST benefits being passed on to consumers. Directors in most of these companies are asking for updates on anti-profiteering, said the people cited above. Some of the queries are also being directed at tax advisors, they said.

“Anti-profiteering has become a board issue, subsequent to the letter from CBEC,” said Sachin Menon, national head, indirect tax, KPMG India. “The basic question is what will be the benchmark price that companies must take, on the basis of which reduction has to be applied.”


Tax experts said companies are also concerned about profitability. While some companies have already announced by how much prices would be slashed, it’s just beginning of a complex pricing exercise, they said.

Image courtesy - taxmantra.com

“While passing on rate reductions to end customers is a complex task in itself, considering the specific supply chain and pricing aspects that are relevant to a business, determining input tax credits that are required to be passed on is a very intricate exercise requiring significant cost accounting expertise,” said MS Mani, partner, Deloitte India.

FMCG companies, especially listed ones, need to balance the expectations of investors and consumers, experts said. While being penalised for profiteering is a risk, not able to show healthy margins could backfire on the company’s stock.

“The problem for several companies is maintaining a balance between price reductions and profitability,” said an independent director with one of the companies. “It’s a reputation risk if tomorrow the government pulls up the company but if margins dip, it could reflect on investor sentiment.”

Most companies are conducting extensive product-wise analysis, having cut prices to avoid being on the wrong side of the law, said tax experts. This is mainly because there is no mechanism to estimate anti-profiteering and whether companies can deduct compliance costs from the benefits they derive from GST rate cuts.


Have a Legal Issue?

Get connected to the Best Lawyers and Chartered Accountants Near You!


Related Posts

Read More News on Similar Topics