P&G India lands in legal trouble after the government starts probing the company on receiving complaints that the consumer goods maker is profiteering on the products on which tax rates were reduced in 2017.
The investigation seeks to find if the company has fully passed on the benefit of tax cuts to consumers after the Goods and Services Tax (GST) Council cut taxes on products such as shampoos, cosmetics, hair oil and groceries from 28% to 18% in November 2017.
A P&G official said to Mint, “As a responsible corporate, P&G has always been committed to passing the net benefit of GST rate reduction to the consumers. We have passed the net benefit and communicated the same via advertising in mass media to help increase awareness with the consumers, shoppers, and retailers.” The official further added that the company has passed on the “net benefit" of the tax cuts to the consumers and “will continue to co-operate with authorities in this matter and provide clarifications."
“We hope that the concerned authorities will appreciate the procedure followed to pass on the GST benefit and will take a just view of the matter," said the official.
A PTI report on Tuesday cited that investigation arm of the National Anti-profiteering Authority (NAA) has found that P&G India has passed on the GST rate cut benefits to the tune of about INR 250 cr through commensurate price cuts.
The GST law requires businesses and merchants to fully pass on the benefit of tax reduction or the availability of input tax credits to consumers.
Experts said that even after the direction some large corporations may unintentionally be found on the wrong side of the law for technical challenges in immediately complying after a tax rate cut is announced.
Another area in anti-profiteering where many companies face difficulty is that instead of cutting prices as warranted by the tax rate cut, they tend to increase the gram age or quantity of the product for the convenient pricing
FMCG companies are faced with a big logistics challenge as they have a diverse product portfolio and each of their products are sold in different quantities. These companies also have a large supply chain comprising of super stockists, distributors, stockists, and retailers, which makes it more difficult to change the prices on all the products that are already in the supply chain immediately after the tax rate cut is announced.
“For large FMCG companies having multiple stock-keeping units (SKUs) and elongated distribution channels, it is difficult to fulfill the anti-profiteering requirements at each SKU level. However, the legislation mandates the need to pass on the benefits on each product," said M. S. Mani, partner, Deloitte India. He further added that such companies need to do a comprehensive drill to ascertain the benefits of tax rate cuts and the manner and extent to which they can be passed on.
A second government official, who requested to be anonymous, said many business enterprises are not familiar with the requirement stated under the law. “First, it is a new law. Second, anti-profiteering is a new concept. The level of awareness is low among businesses and consumers," said the government employee.
Another area in anti-profiteering where many companies face difficulty is that instead of cutting prices as warranted by the tax rate cut, they tend to increase the gram age or quantity of the product for the convenient pricing.
For example, for a shampoo sachet costing INR 2, increasing the quantity is more convenient rather than making a 10 percentage point reduction in the price.
A survey conducted by an online community of consumers Local Circles has shown a steady improvement in customer experience in recent months in getting the benefit of tax cuts intended for them. The survey said 30% of people among 16,000 polled believed in April that they are getting the benefit of tax cuts on items like shampoos, cosmetics, and groceries, up from 15% in June 2018 and 27% in January 2019.