The Goods and Services Tax ("GST") regime has been implemented in Malaysia for a month now, and the Ministry of Domestic Trade, Cooperatives and Consumerism ("MDTCC") has taken an aggressive stance against errant traders who have raised profits unreasonably. This article aims to provide an overview of the recent enforcement actions taken by the MDTCC under the new Price Control and Anti Profiteering Act 2011 in Malaysia ("PCAP").
As of 4 May 2015, the MDTCC (in its capacity as administering authority) has received 11,147 complaints and inquiries on the pricing of various products following the implementation of GST in Malaysia. Approximately 54 percent of the complaints were received through the MDTCC's online e-aduan complaint form.
To date, the MDTCC has inspected a total of 188,410 business premises on a national level and a total of approximately 735 show cause notices have been issued, of which 540 led to the commencement of investigation papers which were referred to the Attorney General's Chambers for determination of prosecution.
At present, a total of 642 cases are currently under investigation.
At the beginning of May, it was reported that a total of five traders are expected to be charged in court for taking advantage of GST and making unreasonably high profits. The five cases are from Melaka, Penang and the Federal Territory of Kuala Lumpur. Two other companies have been compounded for profiteering.
On 6 May 2015, it was reported that a supermarket retailer became the first company in Malaysia to be charged under the PCAP. The company director appeared before the Sessions Court and a not guilty plea was entered. The Sessions Court has fixed the date of 9 June 2015 for hearing of the case.
Establishment of a special court
At present, the PCAP empowers a Sessions Court with the jurisdiction to try any offence under the PCAP and to impose full punishment for any offence. However, it has been reported that the MDTCC plans to set up a special Sessions Court to deal with profiteering and unscrupulous trading offences committed by traders.
It is intended that the Sessions Court will be presided by a judge and the prosecution of cases will be dealt with by the prosecuting officers from the MDTCC's enforcement division and assisted by deputy public prosecutors from the MDTCC's legal division.
Application of PCAP
The PCAP makes it an offence to profiteer and seeks to protect consumers from unreasonable price increases in goods and services. To this end, the PCAP permits the Price Controller to impose a maximum, minimum or fixed price for the manufacture, production, wholesale or retail of any goods, and classes of goods including charges for services in relation to such goods. Any prices determined under the PCAP must include all government tax, duties and any other charges.
Under the PCAP, it is statutory offence for a person to make an unreasonably high profit ("profiteering") from the sale or supply of goods or services in the course of a trade or a business. The PCAP empowers the Minister of Domestic Trade and Consumerism to prescribe the formulation to determine whether profit is unreasonably high by taking into account factors such as supplier’s costs, market supply and demand, conditions of the geographical or product market and corresponding imposition of any taxes.
In its current form, the PCAP already prescribes for onerous penalties for the commission of offences. At present, individuals who fail to adhere to the prescribed prices or engage in profiteering may face a maximum fine of RM100,000 per offence, imprisonment for a maximum of three years or both, and a maximum fine of RM250,000 per offence, imprisonment for a maximum term of five years or both for every second or subsequent offence. Bodies corporate which commit an offence face a maximum fine of RM500,000 per offence with a maximum fine of RM1,000,000 for every second or subsequent offence.
Determination of unreasonably high profits
The Regulations 2014 supplement the provisions of the PCAP in respect of the offence of profiteering. It was an offence to make unreasonably high profits for a certain prescribed period from 2 January 2015 up to 31 March 2015 as well as from 1 April 2015 up to 30 June 2016. During these periods, there must be no increment in the net profit margin of any goods or services being sold or supplied. The Regulations 2014 provide a specific formula to determine whether there has been an increment in the net profit margin for the sale or supply of goods and services during the mentioned prescribed period.
The PCAP empowers with broad investigative powers. Chief among them is the MDTCC's ability to conduct an investigation where there are reasonable grounds to suspect that an offence is or will be committed, or where a complaint in relation to the commission of an offence is received. These powers include the right to access at all times any place or premise to collect or monitor the prices of goods or services and the powers of entry, search and seizure of a premise with and without a warrant. Further, as part of an investigation, an individual may be ordered to produce any document, to state where the document may be found or to identify the last person who had custody of the document and where that person may be found.
Complying with the PCAP
In view of the recent developments, it is apparent that the introduction of the PCAP has led to an increased level of consumer awareness especially in respect of the pricing of products and services. It is also evident that the MDTCC is aggressive in its enforcement of the PCAP.
Whilst the MDTCC has a broad range of powers under the PCAP, it should be noted that the PCAP respects legal professional privilege. This means that all privileged communications between a professional advocate and solicitor and his or her client is protected from being disclosed without permission. This privilege is only accorded to lawyers and their clients.
In light of recent developments, it is crucial for businesses to consider the legality of price adjustments given the significant penalties prescribed under the PCAP as well as the reputational risks associated with non-compliance and court prosecution.