Hindustan Unilever’s (HUL’s) troubles with the National Anti-profiteering Authority (NAA) are symptomatic of all that is wrong with the business climate. A top corporate house is facing problems at the hands of a body, the NAA, that should not have existed for actions that are not criminal in nature. The company is being penalized for business decisions that can be called violations only in a socialist economy.
It is unfortunate that the Delhi High Court has denied any interim relief to HUL and asked it to deposit Rs 90 crore as per the NAA order. HUL had pleaded with the court to stay the NAA order demanding the company to deposit around Rs 223 crore in the consumer welfare funds of the government. The penalty was imposed for having allegedly failed to pass on the entire benefit of GST reduction last year.
On December 24, the NAA had held that the FMCG major did not fully pass on the benefits of GST rate reduction to the customers as it did not cut down prices commensurately with the tax cut. The company, the authority ruled, “profiteered” Rs 534.89 crore.
Everything is wrong about the HUL-NAA controversy. To begin with, the very term ‘profiteering’ is obscene, reeking of socialism. When does profit become profiteering? Nobody knows, but still pinkish economists and unintelligent politicians keep ranting against profiteering, windfall profits, unbridled greed, etc. When a case is made against profiteering publicly, price controls creep in.
HUL not bringing down prices when GST rates were cut was nothing but a business decision; they felt that the consumers, convinced about its products, would be willing to pay the notionally higher price—the rate cut had brought down the company’s tax liability, thus increasing its profits, but the consumer had not paid more than they did earlier.
The government wants to rein in businesses so that they don’t’ profiteer but who would rein the biggest profiteer—the government itself. It is a well-known fact that the government made windfall profits when, during the low crude price phase, it collected over 100 per cent in taxes from petroleum product users. It still is fleecing them, as taxation on fuel is still very high.
But from the government’s perspective what’s good for the goose is not good for the gander. For private enterprise, there is the NAA—whose very existence is the negation of economic reforms. The GST Act says, “Any reduction in rate of tax on any supply of goods or services or the benefit of input tax credit shall be passed on to the recipient by way of commensurate reduction in prices.” Otherwise, the NAA will act against them. The penalties range from fines to the shutting down of the enterprise.
As mentioned earlier, the NAA shouldn’t have been born. Now that it is born, the most humane thing for entrepreneurs is its murder. At least, the government shouldn’t allow it to run amok and terrorize businesses.