PremiumAs if GST-rate proliferation was not bad enough, an official panel appears to have adopted a profiteering lens to suggest revisions. To rationalize this tax, let’s go by its reformist rationale
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The word ‘profiteering’ is a throwback to the Licence Raj, when ‘market competition’ in India was mostly about buyers jostling to buy scarce goods and services from monopolies licensed to make bumper profits. The term lost both its sting and salience after 1991, when our economy dropped entry barriers and business rivalry began to transform a seller’s market into a consumer haven. Its return to policy circles five years ago, therefore, struck an awkward note. Ironically, it was a reformist move, the launch of a goods and services tax (GST) in 2017, that revived this label for more than a fair share of profit being made. As GST would subsume various old levies and the Centre wanted consumers to benefit from a lighter burden of taxation, it set up a National Anti-Profiteering Authority (NAA) to oversee the passing along of tax relief. Conceived as a transition monitor, this body has somehow lived on, with its lease of life recently extended till November. No less die-hard has proven the reproach reserved for profiteering. A newsy exhibit would lie in suspicions of this practice being taken into account for an official policy discussion on GST rate revisions.
As reported, a ministerial panel on GST rates is keen to check if past cuts were passed on before offering its advice on a rate rejig. Since a merger of the 12% and 18% slabs into a single rate (of possibly 15%) is among the ideas being considered to simplify GST, concerns are said to have arisen over relief on upper-slab items being charged less not getting reflected in their retail prices. The panel has sought case studies of the post-relief pricing of over two dozen products. These include items that rate-setters may have expected to see cheapen after their levy reduction. In times of an inflation pinch, such an approach does signal public empathy. However, while our monthly GST intake has been buoyant above the mark of ₹1 trillion for three straight quarters (it crossed ₹1.4 trillion in March)—thanks to a mix of covid recovery, better compliance and higher inflation—India’s rising reliance on indirect taxes as a coffer-filler requires an enlarged mop-up. Given all the GST rate cuts since 2017, just regaining its initial weighted average rate would call for hikes. How rate resets will hit folks is thus a valid worry.
Even so, in an open market, it’s not state enforcement but the force of competition that regulates profitability, with over-pricing duly punished by buyers switching to superior options of value-for-money. To ensure as much, the state’s role is to ensure fair rivalry, rather than intrude into private pricing, which must stay a company prerogative for its strategic autonomy to be upheld. This is why the NAA must cede its powers to India’s rivalry regulator later this year, as planned, with no further extension. Also, while data on responses to past rate cuts would be informative, cases of price rigidity should be put under closer analysis to assess market dynamism (or lack thereof), and not serve as a basis for ‘rate rationalization’. For the use of this term to justify itself, consider the rationale of a key reform that our GST slapfest lost sight of in its half decade of variability. Such a tax was meant to apply a single rate to all that’s deemed taxable (with rare exceptions), so that its very design could resist arbitrary tweaks and corrupt favours. The integrity of its simplicity was meant to underpin India’s tax stability and attract investors. What we have instead is a rate maze that has proliferated beyond any hope of doing that. Let’s aim to rescue GST.
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