By Seng H Yeoh

There has been much noise about the Anti-Profiteering Act 2014, with businesses calling for the termination of this law. When this Act was introduced, the intent was to protect the consumers and deter businesses from capitalising on the introduction of GST to raise their net profit margins.

Let us first understand the definition of profiteering. Merriam-Webster refers to a profiteer as one who makes what is considered an unreasonable profit, especially on the sale of essential goods during times of emergency.

In Malaysia, the period covered was to lapse in June 2016, but was extended till December 2016. While the intent appears to be noble, there are unintended economic consequences that have to be considered from both the consumers’ and retailers’ perspectives.

In terms of duration, 21 months is considered a more than reasonable amount of time for protection. If we are considering normal goods in a competitive market, there is no compulsion for the consumers to buy. It was reported that a restaurant was fined RM4,000 for increasing the price of nasi lemak from RM2.50 to RM3.50. Is nasi lemak an essential good or is that restaurant a monopolist? If not, what profit margins are considered excessive and who decides that? Do the consumers have a choice in not patronising the restaurant if they feel that the prices are exorbitant?

The price control component of the Act protects the raising of prices of the so-called essential goods for the benefit of consumers. For the other component on profiteering, should the regulators determine what the net profit margin is for retailers? As consumers today are more informed, with social media and the internet, they are in a better position to make rational choices on their own. If the prices of the goods and services are excessive compared with similar types, consumers can easily vote with their feet.

Policymakers may not be the most informed to determine the profit margins of businesses. The rationale cited by a hypermarket shows the anomaly of the prolonged regulation. If the profit margin of Hypermarket A for the same item is lower than Hypermarket B before Jan 1, 2015, assuming Hypermarket A decides to increase the price of the said item to the same amount as Hypermarket B, there would be an upward adjustment in net margin for Hypermarket A.

Although the retail price of Hypermarket A is on par with that of Hypermarket B, the former could be charged for profiteering as the net profit margin for the former has increased. Bear in mind that the retail prices for both these hypermarkets are the same. Is the intent of the Act to prevent businesses from increasing prices or is the case cited above considered profiteering when the retail prices to the consumers are similar?

If the complaints are already emanating from the hypermarkets who have the manpower and resources to respond to the investigations from the public officials, what would be the impact on the SMEs? All it takes is for one consumer to file a complaint that the price hike is excessive and the ministry staff would have to investigate.

For SMEs selling a myriad of items, they have to provide an analysis on the margins to justify the price hike for each item. Such onerous compliance will be rather taxing on the SMEs and are an unnecessary intrusion into their business management. The SMEs do not have the resources to respond to the investigations and they risk being charged if the explanations are not satisfactory.

While it is understandable that the anti-profiteering component is to deter retailers from excessive price adjustments post GST, the window of protection should be closed. In a competitive market economy like ours, retailers that overcharge will not survive as the consumers have an abundance of choices.

Businesses should be free to determine the prices of their goods and services as they are responsible for their own survival. If they are not in a monopolistic or oligopolistic situation, the market will force down the prices.

What some consumers may not comprehend is that there are many other factors that determine the costing and pricing of goods and services. The quality of ingredients, the ambience of the place, the service quality and hygiene etc. These factors are intangibles which entail higher costs for the operation of the business. At the end of the day, the decision to buy or not lies with the consumers.

However, with the Anti-Profiteering Act, all it takes is for one consumer to file a complaint with the ministry and the investigation process will be initiated. This will impose a burden on the SME that is struggling to survive in this prevailing market of slower demand and rising operating overheads.

The regulation has taken its course and served its purpose. Let us not allow the policymakers to intrude into the sacrosanct space of the SME entrepreneurs and try to decide what excessive profits are. In this case, let the market forces decide as the consumers are spoilt for choices.

Seng H Yeoh is an FMT reader.

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