Anti-profiteering Authority: an unworkable mechanism

In mid-November, the Union Cabinet approved setting up of a National Anti-profiteering Authority (NAA) under the Goods and Services Tax (GST) so as to ensure that the benefit of lower taxes reaches consumers.  

If a consumer feels that the reduction in the incidence of tax under GST is not being passed on, she can register a complaint with the authority. The anti-profiteering mechanism provides for setting up of a 'screening committee' at the state-level and a 'standing committee' at the national level. The complaints will be first sent to 'screening/standing committee', depending on whether it is of local nature or of national import.  

If the complaint has merit, the respective committee would refer the case for further investigation to the Directorate General of Safeguards (DGS). The DGS will generally take about three months to complete the investigation and send the report to NAA.  

If NAA finds that a company has not passed on GST benefits, it will either direct the entity to pass on benefits to consumers along with 18% interest, as also impose a penalty, or if the beneficiary cannot be identified, will ask the company to transfer the amount to the 'consumer welfare fund' within a specified timeline. The authority will have the power to cancel registration of any entity or business if it fails to pass on to consumers the benefit. But it would probably be the last step against any violator. The NAA will have a sunset date of two years from the date on which the chairman assumes charge.  

The trigger for setting up of the authority now is the decision in the meeting of the GST Council on November 9-10, to shift 180 items from the highest tax slab of 28% to 18% or lower. There was an apprehension that manufacturers/traders would not pass on the benefit consequent to the steep reduction in tax rates. Hence, there is urgent need for a mechanism to prevent it.

But why did the government have to wait that long? After all, GST was launched on July 1, and was expected to result in lower prices for a majority of goods, due to elimination of more than a dozen central/state level taxes, their cascading effect and high transaction cost. Therefore, the need to have the NAA in place was felt right from day one.  

Yet, the inexplicable delay has cost consumers dearly. There have been several instances of dealers taking them for a ride. Apart from the tax relief not being transmitted, in some cases, the dealers were found to be charging GST over and above maximum retail price (MRP), which includes the tax component. Will the authority help prevent this?

The proposed anti-profiteering mechanism involving several layers, and bureaucratic red-tape inevitable in such an arrangement, does not inspire confidence.

From the time a complaint is filed till recommendation is made by DGS and issue of order by the authority, at least six months, at the minimum, will have elapsed. It could be much more if investigations by DGS take longer than the minimum three months and the committees make reference to the former under 'business as usual' scenario. Thereafter, the violator (read: manufacturer/dealer) will have to identify millions of consumers and pay them compensation amount towards the benefit of the lower tax.  

Unrealistic expectations

This is a humongous task, bordering on impossibility. This requires huge documentation at every level of supply and marketing chain, availability of digital records right up to the dealer level, insistence by all consumers on receipts and their retention for a reasonably long period. The biggest problem is at the level of consumers who are
generally not prone to asking for a receipt and even if they ask for it, to expect them to retain them for six months is unrealistic.  

This position is accepted by none other than the government itself when it opines that "if the beneficiary cannot be identified, will ask the company to transfer the amount
to the 'consumer welfare fund' within a specified timeline". Transferring the money to a fund does nothing to give relief to consumers who suffered due to the wrong committed by the manufacturer/dealer.

Such a remedy can also lead to other complications. When a company is asked to pay back crores of rupees, say, after an year (normal time taken for the process to get consummated), this will necessitate re-writing of the income-expenditure account, balance sheet and, in turn, affect calculation of tax, surplus/profit and dividend distribution, etc. This can boomerang on shareholders.  

The threat of cancelling registration of the concerned entity is substantially diluted by a caveat that 'it would probably be the last step against any violator'. Besides, it gives a lot of discretion to the bureaucrat, which is out of sync with Prime Minister Narendra Modi's commitment to a policy-driven governance free from corruption and nepotism.  

Finally, giving the authority a tenure of only two years is indicative of this being a half-hearted move. By the time it starts making an impact in terms of correcting the wrong, if at all, in a couple of cases, it will be time to pull the curtains down on the NAA.  

Thus, the setting up of NAA is like an attempt to catch the horses after they have bolted from the stable. To deal with the problem at hand, the government should follow the dictum 'prevention is better than cure'. Apart from issuing directions on the 'dos and don'ts' (this part is being done in ample measure), it needs to focus on random checks, followed by action against violators on a 'real-time' basis.

The Ministry of Finance/Central Board of Excise and Customs may deploy a huge contingent, picked up from the army of unemployed youth - on the same lines as Modi asked the Institute of Company Secretaries of India to mobilise 1,00,000 persons to help small businesses on GST - to do the job.

(The writer is a New-Delhi based policy analyst)