Down the shutters

| Updated on September 24, 2021

Now that the ecosystem has adapted to GST, the NAA can be eased out   -  KVS Giri

The anti-profiteering authority has served its purpose and shouldn’t be given extensions

The tenure of the National Anti-Profiteering Authority (NAA), set up under Section 171 of the Central Goods and Services Act in December 2017, has been extended by yet another year to November 2022. A recent report in this newspaper said this was being done to deal with pending cases, with the prospect of these being transferred to the Competition Commission of India (CCI) from next year. However, the performance and very rationale of the NAA has come under a cloud, with over a 100 petitions in various High Courts against the provisions that underlie it. Businesses (principally, hotels, realty and FMCG are in the line of fire) have questioned the lack of clarity on how tax benefit should be computed and passed on to the consumer. There is no computation rule to accompany Section 171, which merely spells out that a “commensurate” reduction in tax rates should be passed on. A tax benefit can accrue from rate reduction or from a change in input tax credit (ITC). As analysts have pointed out, a point of contention is whether the tax benefit should be passed on to every product on offer in the case of a multi-product firm — it can also be discharged on a net basis with the seller having some leeway. The NAA has generally ruled in favour of the former, which can be stifling for business.

In the case of computing ITC benefit, a product-wise segregation can become very difficult. Businesses should be allowed to liberally set off the loss due to denial of ITC benefit against a GST rate reduction, as is typically the case when rates are reduced from 12 per cent (with ITC) to 5 per cent (without ITC). However, the NAA has tended to take a stern view, coming down strongly on even the slightest price increase over ITC benefit withdrawn. It is glaring that the NAA rulings do not take change in input costs into account, a factor that is overtly mentioned in the price monitoring rules of the Australian competition authority, on which the NAA is modelled.

The larger question is whether prices per se — as opposed to overseeing overall market structure and dominance — should be actively monitored in a market-driven economy. If price regulation is at all to continue, the CCI should hammer out a formula that allows reasonable pricing power to business. The NAA was seen as a transitory arrangement to ensure that the benefits of lower levies in the wake of GST are passed on. Now that the ecosystem has adapted to GST, the NAA can be eased out. The solution to unfair practices is to promote competition and consumer awareness. A nanny State approach does not sit well with promoting ease of doing business. Well functioning markets need informed consumers and light-touch regulation.

Published on September 24, 2021

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