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FMM Calls for Removal of Regulations to Fix Profits


FMM strongly objects to the proposed introduction of a new regulation to replace the existing Price Control and Anti-Profiteering (Mechanism to Determine Unreasonable High Profit) (Goods and Services Tax) Regulations 2014 which will be discontinued on December 31, 2016. 

We recognise the necessity to introduce the regulation to curb profiteering following the introduction of Goods and Services Tax (GST) for 18 months. Now that the GST is fully embedded, this regulation should be terminated as earlier announced and not to be replaced by another regulation. We note that the Net Profit Margin (NPM) mechanism in Australia and United Kingdom for example were disbanded within a few months of its implementation following the GST introduction when inflation eased. 

We also recognise and support the need to control pricing of some essential items which affect the lower income group but a regulation to control pricing of all products indefinitely is contrary to free market practice and will adversely affect the sentiment of businesses and investors. No other country has in place regulations that discourage fair business competition to be enforced continuously without an end date. 

The proposed new regulation requires a set mark-up in percentage to be maintained for a duration of a financial/calendar year for all products. This single mechanism to control the profit which is applied to all products and to all different industries with different costing and pricing strategies is not only unrealistic but time-consuming and costly for industries and regulators to implement. In fact, it may even be impossible to implement efficiently. The new regulation would also discourage innovation and efforts to increase productivity and cost efficiency as companies would be forced to maintain or reduce prices in order to maintain the percentage mark-up.  

FMM is of the view that other than control on essential items, any new regulations to fix profits should be removed and for market forces to be allowed to prevail in the determination of prices of goods and services. It is important for the Government instead to encourage competition, remove monopolistic situations and reinforce the existing laws including the Competition Act to curb profiteering. 

July 18, 2016

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