Let competition set fair prices under GST
Chief Economic Advisor Arvind Subramanian’s reported suggestion to have a ‘sunset clause’ in the anti-profiteering rule under the Goods and Services Tax is welcome. The rule creates an oversight authority to ensure that producers and service providers pass on reduced tax burdens to consumers. This holds potential for abuse and would lead to disputes. Ideally, the rule must be scrapped. The second best option is to set a deadline – nine months to a year – for its withdrawal. The idea of enforcing the rule initially is to help consumers get the benefit of lower prices during the transition to the new tax system.
Retail prices will come down as GST subsumes indirect taxes and cuts out the cascade of multiple taxes that products bear, lowering production costs. The government must amend the Central GST law to incorporate a sunset clause to ensure that the rule is scrapped within a year. It should rely on competition and the market mechanism to set fair prices. Allowing easy entry and exit rules will foster competition.
There is no rationale for yet another authority to deter price gouging. India has an institutional structure, the Competition Commission of India, to tackle market abuse arising from lack of competition. Let the CCI probe if there is collusion or abuse of market dominance in any industry. It is wholly redundant to propose, say, a body under the Central Board for Excise and Customs to investigate cases of flawed competition and failure to pass on reduced tax burdens. It could be source of harassment, as industry apprehends, drawing on past bitter memories.
The tax burden can itself be lowered if the tax base for GST is widened. This is eminently feasible when large chunks of the economy are included in the tax base and exemptions are kept to the minimum.