On 5 June 2018, the Price Control and Anti-Profiteering (Mechanism to Determine Unreasonably High Profit) Regulations 2018 were introduced by way of a statutory order published in the Federal Gazette. This development follows Malaysia's introduction of a zero-percent GST rate, which has led to a greater scrutiny on pricing.

Broad scope of application

The 2018 Regulations revoke the earlier Price Control and Anti-Profiteering (Mechanism to Determine Unreasonably High Profit for Goods) Regulations 2016 which sought only to regulate certain classes of goods - namely food and beverages and household goods. With effect from 6 June 2018, the 2018 Regulations apply to:

  1. Any goods sold or offered for sale
  2. Any services supplied or offered for supply

Mechanism to determine unreasonably high profit

The 2018 Regulations prescribe a specific formula for the determination of unreasonably high profit. The determination of "unreasonably high profits" involves examining the mark-up percentage mechanism or the margin percentage mechanism using the prescribed formulas.

A comparison is done by comparing the percentages of any (i) goods sold or offered for sale or (ii) services supplied or offered for supply on the first day of a particular financial year or calendar year, against the percentages of any (i) goods sold or offered for sale or (ii) services supplied or offered for supply in that particular financial year or calendar year.

  • Mark-up percentage mechanism - The mark up percentage is calculated by taking into account the sale price less the cost price, divided by the cost price using a percentage basis.
  • Margin percentage mechanism - The margin percentage is calculated by taking into account the sale price less the lost price, divided by the sale price using a percentage basis.

Implications for businesses

With the broad application of the Price Control and Anti-Profiteering (Mechanism to Determine Unreasonably High Profit) Regulations 2018, it is crucial that businesses undertake a comprehensive review of its pricing policies and are cautious in the establishment of new prices following the reduction in the rate of GST.

The Ministry of Domestic Trade, Co-operatives and Consumerism (MDTCC) has broad powers under the Price Control and Anti Profiteering Act 2011 and is diligent in its conduct of price monitoring exercises. This is also supported by the fact that there is a heightened awareness on the part of consumers who will not hesitate to make comparisons of pricing and initiate complaints against businesses who appear to profiteer through price increases.

Summary

  • All businesses involved in the supply of goods and services will be governed by the 2018 Regulations.
  • Review internal pricing policy and ensure that all change in prices can be justified.
  • Ensure accurate and systematic documentation process is in place.
  • Be prepared to provide full cooperation and the necessary information to authorities in the event of an investigation on the pricing of the goods.

It is evident that the MDTCC has been conducting checks on businesses following the introduction of a zero-percent GST rate, to ensure that prices have been reduced accordingly. All businesses must take immediate steps to ensure compliance with the 2018 Regulations.