Taking a look at the anti-profiteering regulations



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IN marking the 100th day since the Goods and Services Tax (GST) was introduced on July 9, we should also remember that 190 days have passed since the Price Control and Anti-Profiteering Regulations 2014 were imposed. Already, a number of well-known  companies, as well as many others, have been publicly “outed” as having contravened the latter and are considered guilty of profiteering.

This is unfortunate, as in some cases, while they were guilty of breaching the regulations, it may not have been as a result of making “unreasonable profits”, which is what the regulations are intended to prevent.

But first, how have we reached this point and who does it affect?

As with other countries that have introduced the GST, the government wants to ensure that unscrupulous traders do not take advantage of consumers during the changeover. It intends to make sure that the profit made by an entity on the sale of any item does not exceed that which it was making on that item as at Jan 1, 2015.  This restriction on increasing profits continues through to June 30, 2016.

In Australia, the way in which profiteering can be dealt with is a lot more flexible. The authorities can access a number of less formal options for dealing with offenders, including requiring an offending business to compensate its customers, and where they cannot be identified, compensate customers in general by providing its services free for a period, or donating the “unreasonable profits” to a charity.  

In Malaysia, under the regulations, the Ministry of Domestic Trade, Co-operatives and Consumerism (MDTCC) only has the option of taking the matter to the court, where offenders could face fines and possibly, imprisonment.

After the anti-profiteering regulations were published, relatively little action from MDTCC was initially visible, although it appears that a lot of preparatory work for Ops Catut — to check on errant traders after GST was implemented — was being undertaken.

Since mid-March much of that work has become clearer, with Ops Catut being ramped up and numerous businesses feeling the impact, particularly after April 1, 2015.  As at June 8, we understand that nearly 22,000 complaints have been lodged, with 1,902 cases being investigated and more than 52 cases making their way to the courts.

For those who think that the anti-profiteering regulations are all about the business-to-consumer trade and won’t affect them, it may come as a shock that MDTCC has embarked on the second phase of inspections in the business-to-business area, with a number of distributors and manufacturers being called upon to justify their prices and profits. The net effect is that no business is safe.

So, how can businesses deal with the regulations?

The issue is that the onus to comply with the regulations lies squarely on the business operators and, in many cases, one may almost be treated as guilty until one can prove his or her  innocence.  It is also difficult for a business to defend itself in court, as this instantly results in its name and alleged actions becoming publicised, doing significant damage to its brand, even if it is eventually found innocent. So, it is essential to be in a position to deal with the process before it gets anywhere near the courts.

In addition, the business can be in breach of the regulations if it does not respond within the time required in Notice 21 that may be issued by the MDTCC.  This is an offence regardless of whether it has engaged in profiteering or not. Of the businesses found guilty under the regulations, many were actually guilty of not having responded within the required time frame rather than profiteering.

Many of the rest were “found guilty” as, rather than risk their name being dragged through the courts over a period of time, they decided to settle the matter as quickly as possible. This could be the case even where they could justify price increases that caused the problems.

Unfortunately, compliance is not simple.  The regulations are structured to make it easy for MDTCC to react to complaints and monitor and investigate possible breaches in a simple retail business.

When the regulations are applied to a more complex business, the information required becomes progressively more difficult to comply with. This is largely because of the type of information that a business needs to be able to produce: few will be able to access them as most do not require, or keep, that type of information needed to run their businesses.

Little weight is given in the regulations to issues such as supply and demand, and the effect that this has on pricing and profitability. Many other factors that complex businesses are set up to deal with receive little or no recognition, and in a number of cases, the regulations require that a business act in conflict with other legislation.

How does a business keep itself safe from the MDTCC?  Unfortunately, it is not easy, but there are certainly steps that can be taken to reduce one’s risk profile.  A business can, for example, simply resolve not to increase prices at any stage before June 30, 2016, but this is not necessarily a practical option as costs do go up, and shareholders demand a good return on their investment.

 The alternative is to be pro-active in dealing with the issue of raising prices. Obtain advice, and prepare an acceptable justification for any price rise.  There are many reasons that may apply, but the facts need to support the reasons.  Ensure that the advisers that you are relying on have an understanding of MDTCC’s requirements as well as the needs of your business, and prepare well to address both.

Simply raising prices without being in a position to justify your decision is a recipe for disaster, and can only lead to a bad outcome.  At the end of the day, it is all about risk management, and this is certainly an issue that should be receiving the attention of the board and executive management of any business.

Bruce Hamilton is GST director and Bonny Teo is GST associate director of Deloitte Malaysia. Hamilton recently facilitated an anti-profiteering session with 40 Malaysian judges and prosecutors, sharing Australia’s experience in tackling profiteering.

This article first appeared in Forum, The Edge Malaysia Weekly, on July 13 - 19, 2015.