GST: Govt dictating prices goes against free-market spirit; will anti-profiteering law end up as tax terrorism?
In an interview with CNBC TV-18 on Monday, revenue secretary Hasmukh Adhia gave an explicit warning to companies planning to raise product prices before the start of the goods and services tax (GST) July 1 .
Adhia in her non-indirect, open threat called on companies to block rate hikes until the GST will be implemented and suggested that any price increases, even if made for reasons such as higher ticket costs may be investigations.
“My suggestion would be everything for now, until the GST will be implemented, if it can contain price increases.” Unless this is a serious problem of rising costs, we can not absorb it immediately. Hold on for a while, “Adhia said. “But even if it has to absorb the cost and what it should do, it’s further research,” said Adhia CNBC-TV18.
Adhia responded to a question on the fight against speculation in the GST laws stating that it is essential to ensure that the benefits of reducing the effect of taxes after the GST will be passed on to consumers. Adhia’s comments came after noticing that some companies may have to increase their prices so that margin success is not important once the GST will occur and that the benefit of the tax reduction is passed on to the consumer.
The government’s desire to avoid such irrevocable price increases that will finally come to the common man is indeed commendable.
But the problem arises when the government puts market prices instead of facilitating market functioning. Adhia should remember that companies that change the price can be based on increased costs of inputs, competition and seasonal factors, among others. The tax is only one component.
When Adhia says price increases will be a “survey question” that automatically sends businesses into panic and opposes the principles of a free market. The anti-speculation law aims to ensure that the benefits of GST reach people, but it should not become a tool to terrorize the market to artificially control prices to get the desired result of GST startup.
Remember, in an interview with Moneycontrol, Adhia said that inflation will not rise after the application of GST from July 1 and the government took care to ensure that prices do not rise. Inflation will decline by 2 percent by the end of the year.
Reading the two together, the government is determined to see that prices do not rise in the post-GST market to deliver on its promises. Prices should fall if there are genuine reasons, but should not be an element of force on the part of the government behind such a move.
As mentioned above, the tax is only one part that decides the final price of a product. Government dictating prices can be very damaging to the principles of a free market. It’s going to be very destructive for companies to keep prices high on input costs when they fall. In addition, changes in the tax regime allow companies to pass on the benefits of the final price to the consumer. The strength of the market force companies to do so.
The GST is a historical shift in India’s economy, perhaps the most important indirect tax reform India has ever known. It is important that the government ensures that the transition does not become a painful experience for both industries for the common man.
You must have confidence in the market. The actual benefits of GST changes occur only after a delay since the system has to adapt to the change. It is not necessary that the economic benefits of GST change occur immediately. In a note Monday the ICRA rating agency said the GST’s impact on economic growth should be neutral during fiscal year 2018.