MRP TRAP - 2. A possible solution.
Reading the responses to my write-up MRP TRAP on this forum, I found that, it is a general misconception with people that excise and VAT are charged on MRP. They are NOT. It is also a misconception with some that GST will solve this problem. It will NOT because GST or no GST, the issue or MRP still remains. GST and MRP are both mutually exclusive, unconnected, issues. I have clarified these in the comments on my original post.
Some are also under the impression that customers can bargain and get below the MRP. But that defeats the purpose of MRP because it was put in place, so that customers do not have to bargain. How much is the bargaining margin, nobody knows for sure and so customer always looses.
Manufacturers are free to print any MRP because they dont have to pay taxes on MRP. The high MRP leaves a tidy margin for the trader to exploit. The manufacturer also benefits because in his sale to the trader, on paper atleast, he leaves only a small margin for the trader. But in real terms due to high MRP, the trader increases his margin due to the big gap in MRP and actual sale price to the consumer. The gap is so big, that the trader can also afford to give a discount on the MRP even without the customer asking for it. The trader also pays his income tax on the slender margin, the manufacturer gave, which is on paper. The additional gap-margin which he earned, is discretionary, whether to declare or not. Therefore, the loss to the government by way of income tax is built into the scheme. The loss to the customer due to bad bargain is also built-in. It appears almost like government sponsored.
A part solution to this menace will emerge if all government levies like excise, VAT, are charged on MRP minus a nominal presumptive margin for distribution and profit. This will jack up the price of the product, unnecessarily. The market forces and competition, will not accept such high priced products. The trader will not have much scope to bargain on the MRP, once the true value is mentioned.
In the present form, the MRP is inflated because taxes are not paid based on MRP. The income tax act makes it mandatory to get accounts audited, in most cases. Government must cross check, through the auditor's report, on profit and loss accounts filed with the income tax department and co-relate the actual profits shown, to the printed MRP. The statuatory auditor can be simply assigned the task to check on this and report, just as he is reporting the other activities and financial entries of the company. The difference, in reported profits and MRP, if greater than say, 10%-15%, can then be subjected to presumptive taxes, in the same way as is being done now, on so many other activities under the income tax act. This may perhaps discipline the trade. One must understand that the trouble starts due to printing of high MRP by the manufacturer and therefore he is the one to be disciplined first. more
Some are also under the impression that customers can bargain and get below the MRP. But that defeats the purpose of MRP because it was put in place, so that customers do not have to bargain. How much is the bargaining margin, nobody knows for sure and so customer always looses.
Manufacturers are free to print any MRP because they dont have to pay taxes on MRP. The high MRP leaves a tidy margin for the trader to exploit. The manufacturer also benefits because in his sale to the trader, on paper atleast, he leaves only a small margin for the trader. But in real terms due to high MRP, the trader increases his margin due to the big gap in MRP and actual sale price to the consumer. The gap is so big, that the trader can also afford to give a discount on the MRP even without the customer asking for it. The trader also pays his income tax on the slender margin, the manufacturer gave, which is on paper. The additional gap-margin which he earned, is discretionary, whether to declare or not. Therefore, the loss to the government by way of income tax is built into the scheme. The loss to the customer due to bad bargain is also built-in. It appears almost like government sponsored.
A part solution to this menace will emerge if all government levies like excise, VAT, are charged on MRP minus a nominal presumptive margin for distribution and profit. This will jack up the price of the product, unnecessarily. The market forces and competition, will not accept such high priced products. The trader will not have much scope to bargain on the MRP, once the true value is mentioned.
In the present form, the MRP is inflated because taxes are not paid based on MRP. The income tax act makes it mandatory to get accounts audited, in most cases. Government must cross check, through the auditor's report, on profit and loss accounts filed with the income tax department and co-relate the actual profits shown, to the printed MRP. The statuatory auditor can be simply assigned the task to check on this and report, just as he is reporting the other activities and financial entries of the company. The difference, in reported profits and MRP, if greater than say, 10%-15%, can then be subjected to presumptive taxes, in the same way as is being done now, on so many other activities under the income tax act. This may perhaps discipline the trade. One must understand that the trouble starts due to printing of high MRP by the manufacturer and therefore he is the one to be disciplined first. more
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I am sorry for this late response. I agree with Mr. Chunilal Malik. I have not seen the comments of Mr. Devinder Sharma which I would like to. There has been a clamour of consumer to charge Excise Duty on MRP, but to no purpose. In fact, it should be like mandatory to hold a pre-budget consultation with the consumers' bodies on the proposed budgetary proposals on the same pattern as it is held with the trade and industry bodies like FICCI, CII, ASSOCHAM, etc. etc., and unless the same are also vetted by them, the finance minister must not include it in his budgetary proposals. more
Sep 11
It is not on FMCG products of day today consumption but all on white goods this is a regular practise. There is no connection between MRP and the retailer selling price like mobile phone, TV, Fridge etc. Since I am in FMCG Co. and always due to stiff competition we all have to compare with the lowest quote of the trade and make an entry in the shop. more
Jun 29
Excise Duty is not levied on MRP. MRP is inclusive of all the taxes and no extra charge for any thing. more
Jun 21
REPLY TO MR.DEVINDER SHARMA. Sorry again sir. I maintain that excise duty is not charged on the MRP. It is charged on the exfactory price, which is naturally less than MRP. MRP includes all overheads later to exit from the factory gate, like selling costs, dealer and retailers commission, advertisement costs, cost for paying bollywood actors and cricketers towards promotion, etc. etc. But the manufacturer is bound to print the MRP on the packets before they leave the factory. Therefore MRP minus the above expenses is the excisable value, not MRP. As excise is a levy on production, it is not charged on the sales, promotion, and commission related component of the MRP. How much this component is, is decided by the manufacturer and therein lies the catch. That component is not known to the consumer, which leaves a hefty margin of bargain between retailer and consumer. Sir, please read on further the central excise act section 4A and proceed to section 4A(2). You will find there that abatement in MRP is to be allowed for calculating the excise duty. That abatement is towards what I have described above. I repeat, that the day central excise duty and VAT are charged based on MRP, the manufacturers will think number of times before printing an inflated MRP. Lastly sir, I do agree with you, that most of the posts on this forum are posted by il-informed persons !! more
Jun 20
MRP is big trap, fraud and we can even say a big cheat on consumers. MRP is irrational and there is no link / relation to manufacturing costs. Best example to quote is medicines. in some cases the manufacturin cost of a tablet is very meagre where as MRP will be 1000% to 3000% of manufacturing cost. in addition, traders in remote sub-urban areas charge taxes. more
Jun 20
