Starbucks India caught profiteering from tax cut
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Starbucks India could be fined after failing to pass on a hefty GST cut to its customers. India’s director general of anti-profiteering (DGAP) has found that Tata Starbucks profiteered by not reducing its prices when the government reduced the GST from 18 per cent to 5 per cent in November 2017. Starbucks India is a joint venture between Tata Group and Seattle-based Starbucks.
The DGAP submitted its report to National Anti-Profiteering Authority (NAA) recently.
“The company is found to have profiteered Rs 4-5 crore (US$564,000 to $705,000) as it did not pass on the benefit of GST rate cuts to its customers,” a source told the online publication. “The case is now being heard by the NAA for a final decision.”
Last year, a regular latte at Starbucks India cost Rs 205, equivalent to US$2.89 plus 5 per cent GST. An overcharge of 13 per cent is equivalent to 38 cents on every cup sold. Starbucks may argue it increased its prices at the time coinciding with the cut to offset increased overheads.
The probe was sparked by a customer complaint who was unhappy that the company did not reduce its prices when the tax rate fell by such a large margin.
says that under India’s GST system, businesses have an obligation to compute and pass on the benefit of tax-rate cuts to consumers.
“Any reduction in rate of tax on any supply of goods or services or the benefit of input tax credit (ITC) shall be passed on to the recipient by way of a commensurate reduction in prices,” rule 171 of the Central GST (CGST) Act, 2017, reads.
A spokesman for Tata Starbucks emailed the publication saying the company “conducts its business ethically and complies with all the local laws and regulations”.
A decision on the case will take up to three months. If the NAA rules against Starbucks India, the company can be forced to reimburse affected patrons. In the case of a coffee chain, it would be impossible to identify all the affected customers, in which case the NAA may order the overcharged sum to be deposited into a government-operated Consumer Welfare Fund. The authority may also impose a fine.
Questions & Answers
Q.What is the total amount that Starbucks India is accused of profiteering?
What is the total amount that Starbucks India is accused of profiteering?
Starbucks India is accused of profiteering between Rs 4-5 crore, which is equivalent to US$564,000 to US$705,000, by not passing on the GST rate cut to customers.
Q.What reason might Starbucks provide for not reducing its prices?
What reason might Starbucks provide for not reducing its prices?
Starbucks may argue it increased its prices at the same time as the GST cut to compensate for increased overhead costs, which would offset the tax reduction.
Q.How did the investigation into Starbucks India begin?
How did the investigation into Starbucks India begin?
The investigation was initiated by a customer complaint. This customer was unhappy that Starbucks did not reduce its prices after the significant tax rate reduction.
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