PETALING JAYA: Malaysia’s average inflation in the January-July 2017 period, which has returned to the rate before the Goods and Services Tax (GST) was introduced, suggests that the anti-profiteering regulation is no longer relevant, Institute for Democracy and Economic Affairs’ (Ideas) policy paper states.
Ideas’ new policy paper on “Anti-profiteering Regulations: Effects on Consumer Prices & Business Margins” explores the effectiveness of the Price Control Act as well as the potential effects of the anti-profiteering regulations.
“Theoretically, the regulation is meant to address profiteering concerns, instead of addressing general upward price pressure due to the newly introduced tax system. But in practice, the difference might not matter to the government, leaving the regulation working beyond its intended scope,” Ideas founding associate Hafiz Noor Shams said in his paper.
He added that this raises the concern that the regulation could be abused in the sense that it can become an additional tool for the government to manage general inflation and suggested that a more dynamic net profit benchmarking be adopted to help prevent abuse, as it would tie the regulation to market conditions instead of dates chosen by the government.
Conclusively, the paper was unable to determine whether the Act was effective in curbing price inflation due to limited data available as well as the unreliability of the year-on-year measurement spoilt by base effect caused by the GST.
Among his recommendations were that the benchmark formula be made more dynamic in the short run and a sunset clause be reintroduced into the regulation to wind it up, in the long run.
The research is based on meetings with government officials as well as on statistics from the Companies Commission, Department of Statistics and the Ministry of Domestic Trade, Cooperative and Consumerism.
Hafiz said that the regulation may no longer be relevant regardless of the efficacy of the Price Control and Anti-Profiteering Act in controlling inflation.
“Apart from that, there are concerns that the regulation is stepping beyond its mandate by becoming a tool for the government to manage general inflation instead of fighting anti-profiteering practices,” he said in his policy paper.
“This has possibly led to business closures thus raising the concerns about competition,” he added.
The Companies Commission of Malaysia (SSM) show that the number of terminated businesses rose significantly in 2015 when 33,326 businesses closed, a figure significantly above the 2011-2015 average of 21,073. In 2016, the figure fell to 26,872 businesses. The same source shows the growth of total companies in Malaysia slowed down in 2015 and 2016.
He acknowledged however that there may be multiple factors which led to the closure of businesses but it cannot be denied that the net profit control made it more difficult for the business to run at a time when economic growth was slow.
In explaining the anti-competitive nature of the 2015-2016 profit control mechanism, he said the regulation unfairly discriminated against low-cost businesses. This is in addition to forcing all businesses to absorb rising costs.
This year the regulation was liberalised, addressing some of the issues but still leaving the benchmark inflexible and extended indefinitely. Hafiz said the absence of a sunset clause in the regulation suggests that it is no longer about the GST and has instead become a general tool to manage inflation rather than simply fight off GST-linked profiteering.
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