With the newly reduced GST rates set to kick in from Wednesday, consumer goods companies have asked dealers to reduce prices of the unsold stock amid concerns that the government may invoke anti-profiteering provisions if they do not slash prices in line with last week’s announcement.
Companies such as P&G India and Marico are learnt to have issued instructions to their dealers to facilitate downward revision of prices for stock in trade with immediate effect and has reportedly assured them of compensation against any potential revenue losses.
The government is also working on allowing changes in pricing of the unsold stock or stock in trade once the new GST rates come into effect, with the revision methodology being worked out expected to be broadly in line with the methodology notified for revision in prices of the unsold stock in July for revision of prices of pre-GST stock, two officials involved in the exercise said. The GST Council, in its 23rd meeting on Friday, had slashed GST rates on over 200 items, including a number of consumer items of daily use.
“After the GST Council’s action against restaurants, FMCG companies fear that the government may apply the anti-profiteering provision to them also if they don’t reduce prices in proportion to the cut in rates announced last week. Companies such as P&G and Marico have asked their dealers to reduce prices and would compensate them for the reduced margins,” an industry source said. Businesses would need to lower the retail price for stock in trade in proportion to the cut in GST rates announced by the GST Council last week, one of the officials cited above said.
In its response to queries sent by The Indian Express, P&G India spokesperson said, “We welcome this step by the government and will pass on the benefits to the consumers. P&G continues to look at GST as a positive reform as it will benefit Indian economy and the industry in the long term.” Queries sent to Marico India did not elicit a response.
The final notification for fixing the guidelines for pricing of unsold stock would need to be issued by the consumer affairs ministry, the officials said, adding that the government is expected to allow the downward price revision by pasting stickers on the packaged products. “When the reduced GST rates get notified on 15th (November), the businesses would need to lower the price accordingly. They will have to follow the same guidelines as were issued by consumer affairs ministry earlier,” the official said.
On July 4, the Ministry of Consumer Affairs, Food and Public Distribution had allowed change in MRP on unsold stock prior to implementation of GST till September 30, which was later extended to December 31. As per the July 4 notification, the government had allowed declaration of the changed retail sale price (MRP) by way of stamping or putting sticker or online printing.
Consumer affairs secretary Avinash Srivastava, at that time, had said that for reducing the MRP, a sticker with the revised lower MRP (inclusive of all taxes) needs to be affixed on the label of the package, while for an upward revision of MRP, advertisements were required to be published in two or more newspapers informing consumers about the revised prices in addition to the revision in prices on stickers/labels.
Given that the GST Council in its 23rd meeting slashed GST rates on over 200 items, the companies would need to follow only the guideline of revising the prices in the label or sticker of the packaged product and not get advertisements published in newspapers, the officials said. Items for which the GST rate has been cut from 28 per cent to 18 per cent include common use items such as chocolates, chewing gums, detergents, shampoos, hair creams, henna powder, fans, pumps, lamps, sanitary ware, marble and granite. The Council also reduced rates from 18 per cent to 12 per cent items such as condensed milk, refined sugar and pasta.
Tax experts said that retailers are free to sell products lower than the maximum retail price (MRP) in general as well, so a change in pricing by way of stickers may not be required ideally, but added to say that the government needs to issue guidelines to act against any act of anti-profiteering.
“While retailers and other trade channels are free in terms of the Legal Metrology provisions, to sell below MRP, they would ideally be guided by the manufacturers on the policy to be adopted. Depending on the product and the stock levels in each channel, manufacturers would strategise on the approach to be adopted. The need of the hour is to be compliant and not violate the anti-profiteering provisions,” M S Mani, Partner (GST), Deloitte India said.
The GST Council in its 23rd meeting on Friday had reduced GST rates for over 200 items, with 178 items being brought from 28 per cent tax slab into 18 per cent category. This, coupled with a GST rate reduction for restaurants to 5 per cent, is expected to result in a revenue loss of Rs 20,000 crore. The government is now looking at further rationalisation of items in lower tax slabs of 12 per cent and 18 per cent under GST.