Prices of televisions, stereos, video camera and watches will fall on 29 July following a reduction in the wholesale sales tax (WST) rate from 32 per cent to 22 per cent.
The Australian Competition and Consumer Commission expects that all businesses in Australia affected by the WST reduction manufacturers, wholesalers, retailers will reduce prices fully and immediately on 29 July to reflect the reductions in WST, which take effect on that day.
"The WST reduction is the first stage in the abolition of WST and the introduction of the GST.
"To ensure that consumers benefit fully from the tax reduction the new law provides the ACCC with significant powers and penalties," ACCC Chairman, Professor Allan Fels, said today. "The ACCC expects that the prices on these goods will fall from 29 July 1999 with the reduction in WST. Where this does not happen business risks breaching the Trade Practices Act 1974 and incurring steep penalties.
Refunds are available from the Australian Taxation Office for retailers who have already paid the higher rate of WST on their stock on hand. They should therefore reduce prices on July 29, 1999 so that their customers get the benefit of this tax reduction immediately".
Guidelines on when price exploitation occurs
To explain the operation of the new law, the ACCC today issued Guidelines required by new Part VB of the Trade Practices Act 1974 concerning the price exploitation provisions that now apply to business. The ACCC has consulted widely with business and consumers on the development of these Guidelines.
Part VB prohibits price exploitation from the New Tax System changes either from raising prices too high or not reducing them enough.
The Guidelines spell out the ACCCs view about when price exploitation has occurred.
The Guidelines, in relation to Section 75AU (2) (b), state that:
- prices should be reduced immediately to pass on the full effect of the tax reductions;
- any increase in price based on the GST should include a full offset for other indirect tax reductions;
- no mark-up may be applied to the GST component of price;
- prices should reflect only actual, not anticipated, price increases; and
- businesses should not take the opportunity to increase the difference between costs and prices in dollar terms (the dollar margin rule).
This translates into a rule that businesses should not increase the net dollar margins on their goods and services as a result of the new tax system changes alone (net margin is defined in unit terms as being equal to the sale price less the cost of goods sold less operating and selling costs).
The Guidelines recognise that businesses may recover legitimate costs of complying with the New Tax System changes.
The ACCC has already completed a comprehensive Australia-wide survey of prices of goods subject to the drop in WST. It will do a further survey of these outlets at a suitable time after the tax changes.
GST Inclusive price
When prices are displayed, they should be GST inclusive. In other words, the GST component in the selling price is not to be added after the sale, for example, at the cash register. The ACCC has no objection to a business stating how much the New Tax System changes comprise as an element of prices.
ACCC Compliance Strategy
The ACCC has launched its comprehensive Goods and Services Tax surveillance and information strategy. It includes:
- a citizens hotline number - 1300 302 502 at local call cost to report possible price exploitation. First calls have already been received on this line;
- monitoring for the reduction in WST in 112 cities and regional centres across the nation;
- issuing Guidelines on Price Exploitation - a guide to inform business on when the ACCC will regard price exploitation to have occurred;
- a plain-English News for Business on misleading pricing claims;
- two consumer bulletins: the first on what to expect in price reductions under the WST change from 29 July 1999; and the second on what New Tax System changes occur when;
- acting against those attempting to rip-off consumers and business through scams and other illegal activities; building its national GST staff base; and
- frequently updated information on the ACCCs website: http:www.accc.gov.au.
"For the cost of a local call from anywhere in Australia consumers and business will be able to report exploitation directly to an ACCC officer.
"The ACCC will use the hotline information to come down hard on those who are clearly profiteering.
"The legislation recognises the impact the New Tax System will have on businesses. It accepts that there may be uncertainty amongst business and consumers and it will recognise that this may lead to honest mistakes.
"An important aim of the ACCC will be to educate business and consumers about the prohibition on price exploitation and to help them comply with the Act.
"The ACCC will not hesitate to use its powers to deal with contravention of the Act.
"When the GST is introduced on 1 July 2000, there will be price rises as well as price falls. It is important that consumers have an informed view of price movements. The ACCC will assist consumers by providing information on where price movements may occur.
However, in the short term (i.e. July 29) we can look forward to price reductions on a range of goods.
"As part of a major awareness and education campaign the ACCC will be informing consumers and business about the new price exploitation provisions. Three bulletins are already on-line and more will follow.
Corporate compliance commitments
"The ACCC will invite some of Australias biggest businesses to give a verifiable, public commitment not to engage in price exploitation.
"It will expect these businesses to implement systems that can be independently checked to ensure compliance. In return for these commitments the ACCC will publish the names of those businesses in a public register.
"But such a compliance commitment will not protect any business found to be engaging in price exploitation.
Penalties
"Price exploitation is a serious matter and businesses that engage in it are liable for penalties, per offence, of up to $10 million for corporations and $500,000 for individuals."
"The ACCC can and will issue public notices to prevent price exploitation.
"The ACCC can issue notices which will constitute prima facie evidence in Court that a business may have engaged in price exploitation.
Conclusion
"The ACCC considers that well informed, competitive markets operating in a climate of low inflation and good corporate citizenship generally will ensure that the vast majority of businesses will act fairly and pass through the tax changes.
"But it will vigorously enforce the new law where businesses use the new tax system as a reason to exploit consumers".
"And the ACCC will pay particular attention to pursuing professional advisers who aid and abet their clients to exploit consumers during the transition to the new regime.
The Government expects that consumers benefit fully from reductions in tax rates, where that is the effect of the tax changes. When the GST is implemented consumers should not be exposed to greater than necessary price rises; and there should be no exploitation of consumers.