Starbucks India caught profiteering from tax cut

Starbucks India could be fined after failing to pass on a hefty GST cut to its customers.

According to a report by DNA India, 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.

According to DNA India, 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.

DNA India 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.

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