Prime Minister Datuk Seri Najib Razak has repeatedly told the nation that the GST is not the cause of price hikes, but bad traders are. With this frame of mind, the “Price Control And Anti-Profitering Act 2011” was legislated.
The little known “Price Control And Anti-Profitering (Mechanism To Determine Unreasonably High Profit [Net Profit Margin] Regulations 2014)” Federal Government Gazette was published on 26th December 2014 and its impact has only begun to be felt now.
The Federal Gazatte was not widely known and there was very little communication done on the part of the Government.
Essentially, businesses are not allowed to raise prices between 2nd January 2015 and 30th June 2016.
“The mechanism to determine that profit is unreasonably high for the period from 2nd January 2015 to 31st March 2015 and 1st April 2015 to 30th June 2016 is that there shall be no increment in the net profit margin of any goods or services.”
For the period between 2nd January 2015 and 31st March 2015, price increaases must not exceed the increases in cost of goods and operating costs. For the period between 1st April 2015 and 30th June 2016, tax refunds and input taxes are also considered.
Armed with the Price Control and Anti-Profiteering Act 2011, thousands of enforcement officers patrol shops and busineses daily to check whether they are profiteering, often based on complaints, which could even come from rivals. Busineses would then be required to explain why they “profiteer”. Some were charged subsequently.
For most businesses, profit margins are calculated by percentage and not absolute figure. By regulating based on absolute figures, this means the businesses are forced to absorb the inflationary impact of the GST. The idea of “net profit margin” is problematic.
It is just a plain waste of time for the government to zero in on how a product is being priced and for the busineses to be hassled to give endless explanations for prices. Not even communist governments control prices to such minute detail.
Hence I call on the Cabinet to halt the implementation of “Price Control And Anti-Profitering (Mechanism To Determine Unreasonably High Profit [Net Profit Margin] Regulations 2014)” Federal Government Gazette and to call for wider consultation before a new regulation is gazatted.
There are two fundemental facts that the Government must accept:
First, there is no point for the Government to claim that the GST is not going to affect prices. According to Prime Minister Datuk Seri Najib Razak, the Government hopes that GST can rake in a net tax collection of RM 15 billion after deducting the previously collected Sales and Service Tax (SST). Someone must be paying for the expected net tax collection, which is the consumer.
The Gazette’s purpose is to force busineses to absorb the inflationary impact of the implementation of GST for 18 months.
In essence, the businesses are being forced to absorb additional costs stemming from GST procedures and from the declining value of the Ringgit.
Second, when businesses are forced to absorb the inflationary impact of GST, their costs increase while margins and revenue would fall. As a result, they would be paying less corporate taxes in return, which will reduce the total tax collection. The implementation of GST is for the Government to fill their coffers with more tax collection, but in the end, this could lead to neutral revenue gain.
For the busineses that fail to absorb GST and its consequent hike in costs, they may just close, leading to unemployment, further distrupting the economy as a whole.