Use competition law on profiteering

  • Letters
  • Monday, 06 Aug 2018

THERE is great expectation among consumers that they would be paying less for goods and services when the Sales and Service Tax (SST) is implemented next month.

The numerous comments about its implementation remind me of the days before and after the Goods and Services Tax (GST) was imposed. I was in the midst of it all in the Domestic Trade, Cooperatives and Consumerism Ministry. While it was expected that there would be some increase/reduction in prices, the “over selling” of the efficacy of GST in order to convince the public to accept it proved to be a bad strategy.

Various factors contributed to the increase in prices beyond the expected change after GST was imposed. These included price hikes before it was even imposed, profiteering, consumer response, the weak ringgit, global increase in commodity prices, the stringent Customs audit for refunds of the sales tax and the slow refund of the input tax credit.

However, the public were quick to single out lack of tough enforcement action as the reason for the price increase. After all, they were the ones paying the tax above the actual price of the goods or services.

The same call to act against profiteering traders is now being made. Consumers want errant traders to be charged in court and, if found guilty, handed severe penalties as fast as possible. This reflects the low trust level between consumers and traders in this country.

I am a strong proponent of tough enforcement action but how can this be done?

The Price Control and Anti-Profiteering Regulation 2014, modelled after the Australian Net Dollar Margin Rule, was intended to be in force for 18 months from January 2015 until the end of June 2016. But it was extended for another six months amid strong opposition from the business community and was finally ended in December 2016.

The present Price Control and Anti-Profiteering Regulation 2016 was drawn up after much consultation with industry leaders and consumer bodies, and was limited to food, beverages and household goods. It was amended in June this year to include all goods and services.

It is interesting to note that industry players did not object too much to the inclusion of all goods and services. Perhaps the soft approach taken by the ministry since 2017 gave them some comfort.

The new regulation is less restrictive and gives more room for traders to make price changes. Traders in general were against its implementation, citing difficulty in complying and questioning the necessity of it in a market-driven economy. They also saw it as a politically motivated move by the government to appease the public.

Consumers associations agreed with the ministry that there must be some form of mechanism to check profiteering. With the recent decision to change the taxation system, concerns over price hikes and the likelihood of traders profiteering by not passing the tax savings to consumers have, to some extent, justified the continued enforcement of the new anti-profiteering regulation.

While consumers expect every price hike complaint to be investigated and taken to court quickly, the investigation process requires careful inspection of documents, invoices from manufacturers, wholesalers and retailers and computation of profit margins, which can be time-consuming. Some cases can even take a year before a decision is made. This defeats the intention of the law and the expectation of consumers to punish profiteers and bring prices down.

Effectiveness in enforcement should not be judged by the number of cases prosecuted but the actual prices of goods and services in the market. The ministry has taken the approach to allow traders to revert to the original prices or to a level that is considered reasonable before any punitive action is taken. This has to a certain extent helped to resolve complaints quickly.

But this has not gone down well with some consumers who want to see the traders punished and shamed publicly. While I agree that this would have a greater impact especially on the big boys who value their reputation, this would entail prompt investigations and bringing the errant traders to court within 30 days or a maximum of 60 days. Blatant profiteering must be charged quickly in court with maximum publicity.

It is good that company CEOs and industry leaders have issued statements assuring that there would be no unreasonable price changes. But since similar commitments were made before the implementation of GST, consumers are giving little value to these promises. Thus, the business community must do more to raise the trust level of consumers.

Enforcement of the Anti-Profiteering regulation is still relevant for the short term but the government should really look at using the competition law in the long term. Price fixing and anti-competitive behaviour in the supply chain, wholesalers in the retail chain and the taiko are still rampant. The competition law is the way forward for fairer and more competitive prices of goods and services.

Consumers also need to change their buying behaviours. There are consumers who complain that prices are unreasonable in some shops but continue to patronise them. Online shopping is also an option to consider.



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