Minister Lim's written reply to Parliament Questions on GST profiteering

Name and Constituency of Member of Parliament

Mr Sam Tan Chin Siong, Member of Parliament for Tanjong Pager GRC

Question:

To ask the Minister for Trade and Industry in light of the reported increase in GST profiteering cases (a) whether the current measures against GST profiteering are adequate; and (b) if not, will his Ministry consider introducing tougher preventive and punitive measures to protect consumers' interests from such profiteering.

Written Reply:

The Government takes a serious view of profiteering using the GST increase as an excuse. This is why we set up the Committee Against GST Profiteering (or CAP) in 1994 when GST (0 to 3%) was introduced. CAP brings together government and community resources to look into complaints of GST-related profiteering. It has ensured the smooth implementation of GST increases in 2003 (to 4%) and 2004 (to 5%) and minimized instances of GST profiteering.

CAP works closely with grassroots organizations and the Consumers Association of Singapore (CASE) to investigate every complaint on GST profiteering. In the case of complaints on stand-alone stalls, the grassroots leaders visit with the stall owners and work with them to resolve the issue. This is a nationwide effort. As at 24 August, we received 115 alleged profiteering cases involving over 35 constituencies. For chain stores, CASE has helped to investigate the 116 complaints we have received. In some cases, CAP wrote directly to the businesses asking them to explain their actions of price increases. We also kept the respective grassroots advisers informed of the cases in their areas.

In addition to investigating complaints, CAP undertakes outreach efforts to urge businesses to be responsible and fair, and to encourage consumers to exercise care when making purchases. Over the past few months, we have visited hawker and commercial centers in different parts of Singapore to raise public awareness about GST profiteering. At the same time, CAP has worked with the Department of Statistics (DOS) to release price information on the Consumer Price Index (CPI) and hawker food prices to consumers, while CASE has been publishing the prices of common household items.

CAP’s message of responsible behavior has garnered support from major supermarket chains and stores. More than 10 businesses and industry associations have also pledged to maintain price stability during the transition of the GST increase. For example, all the major supermarket chains[1] have absorbed the GST increase for basic items for a period of time to help consumers in transition.

CAP is not against price increases per se, nor is its job to interfere with the functioning of a free market and to institute price control. Our role is to ensure that businesses do not use the GST increase as an excuse to raise prices indiscriminately and unreasonably. Not all price increases are due to profiteering. In fact, price movements, both up and down, are important signals in a free market to tell producers how resources should be re-allocated to meet changing market demands. Price movements are happening all the time following local and worldwide supply and demand patterns. Since Singapore imports most of our consumption goods and raw materials, we are usually price takers rather than price setters. Of course, local factors of production, such as manpower costs and rental, will also have a bearing on the final price of the goods and services produced or delivered here.

Let us look at the example of condensed milk, which for a while was a concern for many consumers. According to DOS, the price of condensed milk increased by 11% between April and June this year because of the drought in Australia. CAP has highlighted to consumers that they could minimize the impact of price increases by exercising choice. Between house brands and the so-called premium brands, the price of condensed milk can range from $1.00 to $1.90 per can. Consumers can save by switching to cheaper brands. The same is also true for rice and many other consumer goods. CASE has supplemented these efforts by releasing a survey of milk product prices to enable consumers to shop wisely.

Ultimately, free and intense competition and well-informed consumers are the best deterrence against unreasonable price increases. If price increases are unreasonable, whether linked to the GST increase or otherwise, consumers can exercise their choice to switch to cheaper alternatives. In fact, we know that many businesses have refrained from raising prices for fear of losing customers to competition. Indeed, the CPI has increased by 1.98% between December 2006 (after the GST increase announcement) and July 2007. We have also found that more than 90% of the 1,300 hawkers surveyed by DOS have maintained their prices since June. This implies that by and large, our prices are stable. Most businesses have not used GST as an excuse to raise their prices beyond the 2% adjustments on 1 July.

Mr Sam Tan asked whether there is a need for tougher preventive and punitive measures. We do not think that legislation against GST profiteering is necessary at this point in time. Our study of other countries’ experience shows that legislation against profiteering is difficult and expensive to implement and the effectiveness inconclusive. We believe therefore that the best way to bring about price stability is to remove impediments to competition, and encourage free competition. When there are many sellers, and many buyers, prices will find their own equilibrium. Many countries share this view. This is why few countries have such legislation.

CAP’s duty does not end with the GST increase on 1 July. We will remain vigilant against GST profiteering, and will continue to take action against those who profiteer from GST.

[1]

NTUC Fair price, Sheng Shiong, Shop ‘n Save, Cold Storage, and Prime Supermarket.