GST: As one step leads to another, MRP may turn redundant

Chennai: Walk into any law book house in Chennai, the first thing to hit your mind's eye is the cluster of over dozen new books on display now on the Goods and Services Tax (GST) rolled out by the Central government from July 1.

They come in bewildering variety, intensely competing both in content and price, from the minimum four 'bare laws' of GST to the most comprehensive compendium with 'commentary', a bear hug, rivalling in profundity to commentaries on classical texts. It shows how much of a game-changer this huge legislation would be in the long-term.

 While it is too early to get a hang of the GST, even from 'Aam Aadmi' point of view, experts are already informing us that it is good for even small traders with an annual turnover of less than Rs. 20 lakh (sans demonetisation) to get registered under the new law. For being out of the 'supply chain' implies being left out from the new tax manna from heaven - 'Input Tax Credit (ITC)', in some sense the heart of the GST system.

 But for now, most people are at best talking of the 'transition' issues and teething problems, as the ushering in of the GST from the Central Hall of Parliament on the midnight of June 30/July 1, has come sailing on a relatively calm macro-economic sea.

The Reserve Bank of India (RBI)'s latest 'Financial Stability Report, dated June 30, 2017, a day before the 'new freedom at midnight' was rung in from New Delhi's corridors of power, attests to this. Not only have domestic macroeconomic conditions remained "stable' amid expectations of "accelerated reforms and political stability", the RBI report notes, more importantly from the GST point of view, that retail inflation, measured by year-on-year variation in consumer price index (CPI), had declined to a historic low of 2.18 per cent in May 2017.

 Touch wood, the relative softening of global crude oil prices continues to buttress this ephemeral comfort.  Thus no government at the Centre could have asked for a better external price environment to kick-start such a major reform in indirect taxes like the 'dual' GST.  It is, hence, now a little clearer why the Finance Minister, Mr Arun Jaitley, was firmly against any revisit of the GST launch date.

 Even as each sector of the economy works out how the new tax rates pinch their pockets and clamour for lower rates at the next August 5 meeting of the GST Council, a key reason why this hullabaloo has not frayed consumers' nerves so far is this: For almost all the packaged commodities with product shelf-life ranging from three months to a year, are continued to be sold at the pre-July 1 'Maximum Retail Price (MRP). The MRP is ideally arrived at after adding all costs including local taxes, transportation and distribution besides retailers' profit margins.

 “There is no clarity as to when manufacturers will take a call on revising their respective MRP and this may take at least three months; so for now, we don't charge even a paisa more just to ensure we don't lose customers in this transition period” says an influential retailer in Chennai from the Nadar community, a segment the BJP in Tamil Nadu is vigorously wooing politically. “Oxygen for us is we make sales,” Annachi smiles.  

 There was an informal go-ahead to putting new price stickers above the existing MRP rates to reflect the new GST rates, "but we rather prefer to pay the GST liability ourselves for some time, instead of losing customers," a manager of a well known retail chain told DC. Whether prices of pre-packaged commodities, besides a whole array of fast moving consumer goods (FMCG), will really go up or not, despite festival discounts, will have to await a call to be taken by the original manufacturers, he avers.

 Such is the sombre mood among many retailers in Chennai — clothing, footwear, household goods, packaged consumables from tooth paste to even lassi that comes packed in aseptic tetrapack. This is notwithstanding the Central notification that come October 1, the printed MRP on all pre-packaged commodities will have to include the GST rate, though some of these like 'lassi' may attract no GST at all. Nagapattinam fishermen cry that even dry fish would henceforth attract 5 per cent GST!

 Thus, the immediate cash-cow under the new GST regime is in the services, wherein hotels were the first to straight collect the extra charges, equitably dividing the Central GST and the State GST portions. Telecom, banking, and insurance services are already following suit, sending SMS to customers that their services will attract 18 per cent GST.  

 Nonetheless, sources told DC, that a larger issue likely to crop is the very fate of the MRP concept itself. Incidentally, India and Sri Lanka are the only two countries in the world that have this 'MRP' requirement now, for most countries including the EU have left it to the proverbial market forces and Competition Commissions to curb cartelisation. This is one reason why the anti-profiteering clause under the GST is frowned upon by Indian trade and industry, for they fear it may mean return of the 'Inspector Raj'.

 This brings us to the other side of the story, a 2008 report of a Central Government experts committee, headed by Dr M Govinda Rao, then Chairman of the National Institute of Public Finance and Policy. They pointed out that GST, once it replaces the central and state indirect taxes, will be "fully destination based' levy, as suppliers of goods and services at every stage will have to issue 'Invoices' to help avail 'Input Tax Credit' from the preceding stage, until they reach the actual consumers. Only then the cascading effect of various taxes could be avoided under a full VAT regime. It implies a change in the economy's very texture as the fiscal 'Geiger Counter' has shifted to Delhi; for traders, it will be a far cry from the ever-happy 'Kallapetti Singaram', a vintage Tamil film character. Even they need to log on to electronic ledgers to avail these credits/debits.   

The Govinda Rao committee said, at that stage of GST (implementation), "it may be necessary to review the practice of printing MRP altogether; instead, the seller will have to print, not the 'Maximum', but the 'Actual Retail Price (ARP)' though the transacted value may be even lower than this, when a commodity or a service is sold at a discount." That scenario for now remains a million dollar question in a vast, multi-cultural India.