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GST will keep traders from overcharging

In the 1980s, keeping in mind the complicated and varying tax rates in different states, the rules governing pre-packed goods mandated that these commodities indicate the retail price exclusive of local taxes.

columns Updated: Jul 02, 2017 22:31 IST
President Pranab Mukherjee and Prime Minister Narendra Modi launch the 'Goods and Services Tax (GST)' .
President Pranab Mukherjee and Prime Minister Narendra Modi launch the 'Goods and Services Tax (GST)' .(PTI)

The transition, from the midnight of Friday, to a new indirect tax regime based on ‘one nation, one tax’ principle, should finally bring down the curtain on a festering consumer problem — overcharging in the guise of indirect taxes.

The changed tax structure should also bring down the prices of a number of goods and services and I really hope that the retail, manufacturing and the services sectors will fully pass on the reduction in tax rates to consumers. Past experiences have shown manufacturers taking advantage of the absence of a mechanism to study the impact of decreased taxes on prices and enriching themselves by not lowering the prices fully. In this regard, I am really glad that the government has included an anti-profiteering clause in the GST law that provides for the constitution of an authority or empowering an existing authority to ensure compliance. I do hope that the government will use this clause to closely monitor the prices and safeguard the interests of consumers.

I must also mention here that the Legal Metrology (Packaged Commodities) Rules - 2011 have certain provisions to protect consumers from unfair trade practices following changes in tax rates. If, for example, there is an upward tax revision, then the retailer can charge you the increased price only on those goods that are pre-packed after the change in the tax structure. On the other hand, if the tax rates are reduced, the retailer has to charge you the lower price, irrespective of the month in which it is pre-packed.

The rules also prohibit any alteration or obliteration or smudging of the retail price marked on the package. However, in order to indicate the reduced MRP, a sticker may be affixed, but it should be done in such a way that both the old and the new prices are visible.

Coming back to the issue of overcharging that I spoke of in the very beginning, let me dwell briefly on a little bit of history on this vexed problem. In the 1980s, keeping in mind the complicated and varying tax rates in different states, the rules governing pre-packed goods mandated that these commodities indicate the retail price exclusive of local taxes. This, however, gave an opportunity to the retail sector to charge what they pleased as local taxes, and of course, pocket the money because most of them never bothered to issue receipts. The fact that there were too many taxes for consumers to keep track of or understand only worked to the advantage of such unscrupulous retailers.

So, including the taxes too in the retail price marked on the goods was seen as a solution, but manufacturers resisted it for a long time, on the ground that they cannot print different prices for different states. As consumer complaints of exploitation increased, the union ministry of consumer affairs eventually came up with a formula to determine a common tax rate for all the states and include it in the maximum retail price. Accordingly, the rules on packed goods were tweaked in 1990.

However, this did not work out much to the consumers’ advantage because the manufacturers provided enough cushion in the MRP to provide for changes in tax rates of different states and this pushed up the MRP. In some sectors, it was even found that the MRP was highly exaggerated .

Besides, a common MRP meant that while in some states consumers paid much less than the actual incidence of tax, in others, they paid far more than required. Then in recent years, there have also been complaints of retailers promising discounts on MRP and then adding Value Added Tax, despite the fact that MRP included all taxes. The new tax regime should now put an end to all these problems.