GST and Pricing

Answer: The ACCC is required under sub-section 75AV(1) of the Trade Practices Act 1974 to prepare guidelines on the application of section 75AU of the Act which prohibits price exploitation.
The guidelines explain when the ACCC considers that prices for regulated supplies may contravene the price exploitation prohibition. That is – whether the price is unreasonably high, after taking account of New Tax System changes and other matters, including things like supplier’s costs, supply and demand conditions and other relevant matters.
If you are unsure as to the pricing of your goods and services you should contact the ACCC.

Q2. What do the Pricing Guidelines include?

Answer: The pricing guidelines cover a number of key areas. These include:

Guidelines on when prices contravenes 75AU of the Trade Practices Act
Price claims and price display
Enforcement, penalty and compliance issues
Illustrations of the practical application of the guidelines

Q3. How do I contact the ACCC?

Answer: The Australian Competition And Consumer Commission web address is http://www.accc.gov.au

Telephone and addresses:

Australian Capital Territory (National Office)
Chief Executive Officer
470 Northbourne Avenue
Dickson ACT 2602
(PO Box 1199, Dickson ACT 2602)
Phone: (02) 6243 1111
Fax: (02) 6243 1199

New South Wales
Regional Director
Level 5, Skygardens
77 Castlereagh Street
Sydney NSW 2000
(GPO Box 3648, Sydney NSW 2001)
Phone: (02) 9230 9133
Fax: (02) 9223 1092

Q4. What are the penalties for breaches?

Answer: The Federal Court may impose penalties on individuals and corporations for breaching the price exploitation or misleading and deceptive conduct provisions of the Trade Practices Act. The penalties apply also to anyone who is knowingly concerned in, or aids and abets, a breach of the Act. This includes the business's legal, accounting and other advisers. The following tables outline the penalties.

Penalties for price exploitation:

Corporation:

Fines of up to $10 million per offence
injunctions to stop the conduct
maximum price order
refunds

Individual:

Fines of up to $500, 000 per offence
injunctions to stop the conduct
maximum price order
refunds

Penalties for misleading and deceptive conduct:

Corporation:

Fines of up to $10 million per offence
injunctions to stop the conduct
refunds
corrective advertising
any other order the court considers appropriate

Individual:

Fines of up to $500, 000 per offence
injunctions to stop the conduct

Q5. When does a breach of the guidelines occur?

Answer: The Guidelines set out a simple rule as a guide to when price exploitation may have occurred. The ‘rule’ is that businesses should not increase the net dollar margin on their goods and services as a result of the New Tax System changes. The prohibition on price exploitation has three elements on which the Guidelines are based. These elements are:

Is there a regulated supply?
How does the price change compare to the New Tax System changes alone?
What is the impact of the supplier’s costs, supply and demand conditions and other factors?

Put simply, businesses should pass on any tax savings which they receive as a result of the New Tax System. In addition, no price should increase by more than 10% because of the GST.

Where the ACCC believes that price exploitation has occurred it has the power to investigate and if necessary issue a notice. The notice then becomes prima facie evidence in Court proceedings.

Regulated supply:

The term "regulated supply" is widely defined and as a general rule, most supplies that a business makes will be caught by this definition.

The price is unreasonably high considering only the tax reform changes:

Is the price increase fair considering only the tax reform changes? In trying to decide this, businesses should consider the size of price adjustments, and the timing of price adjustments.

Price adjustments – as a general rule, businesses should not increase their net dollar margin by more than 10%. The term ‘net dollar margin’ means the sale price less the cost of the good or service, including operating and selling costs. Changes in volume are ignored for the purposes of determining the net dollar margin.

If the net effect of the changes is to raise costs, the net dollar margin rule implies that prices should not increase by more than the dollar rise in costs. If costs fall, prices should fall be the same dollar amount.

Although the net dollar margin rule should normally be applied to individual items, there may be circumstances in which it is appropriate to apply the net dollar margin rule across closely related good and/or services. Use of averaging will be allowed, provided that the following conditions are met:

The use of averaging is consistent with the business’ existing practice
The use of averaging must not take advantage of market power or be detrimental to market competition
Averaging cannot be used across items that are GST-free and items that are taxable
Overall, the net dollar margin rule must be adhered to for the goods and services as a whole
The price change of individual items must be consistent with the pricing rules.

Averaging of prices is not allowed across geographical areas.

Timing of price increases: as a general rule, price adjustments should occur immediately after the tax reform changes are implemented and the savings in costs passed on to consumers. The guidelines also state that prices should not be adjusted in expectation of the taxation effects of the tax reform changes.

The price is unreasonably high considering other factors:

The guidelines specify certain other factors that should be considered when determining whether price changes are reasonable. These include:

Suppliers costs - if a supplier charges a business higher prices on its inputs, the business is able to increase its own prices to help recover the cost of the higher cost of inputs
Suppliers costs can include raw materials, capital equipment, labour costs, service inputs, rent expenses, electricity charges and telephone expenses
Supply and demand conditions - price adjustments due to changes in the demand for, or supply of, a product will generally be considered reasonable
Any other relevant matter - this is a catch-all provision, enabling a business to adjust prices on reasonable grounds without breaching the guidelines. The onus of proving that the price adjustment is justifiable rests on the business who is making the adjustment.

Q6. What factors does the ACCC take into account?

Answer: The ACCC will consider a range of issues in determining the appropriate response to an allegation of price exploitation. In making a decision whether or not to pursue an investigation it will take into account a series of factors including the following:

blatant disregard of the law
significant public detriment
educative or deterrent effect
achieving redress for those adversely affected

The ACCC can use a number of enforcement methods. The ACCC suggest that the most appropriate method is based on the merits of each case and the outcome that can be achieved.

Q7. How should prices be displayed?

Answer: When prices are displayed they should include GST, except in a few specific circumstances. The GST component in the selling price should not be added after the sale, for example, at the cash register. The total price to be paid should be clear to the purchaser. Businesses are not prevented from separately indicating the GST component, but they must make sure that price displays are not misleading or deceptive or likely to be misleading or deceptive.

Prices as from 1 July 2000:

All displayed prices must contain GST as from 1 July 2000. Displaying a price that is not GST-inclusive is likely to constitute a breach of the Trade Practices Act 1974.
Suppliers have the option of displaying the GST-inclusive price in one of two ways:

- $550 GST inclusive; or
- $500 + $50 GST = $550

Example price displays:

Unacceptable Price displays:
$100 +
$100 + GST
$100 + 10% GST
These do not show the full price to be paid by the customer.

Acceptable Price Displays:
$100 + GST = $110
$100 + $10 GST = $110
$110 (including 10% GST)
These all show the full price to be paid and also make it clear that the price includes GST.

$110
This is acceptable so long as this is the total price to be paid. In the absence of any advice to the contrary, customers may reasonably assume that all prices after 1 July 2000 will include GST.

Price lists
Price lists, which will be used by the general public, should include GST.
Sometimes suppliers may wish to provide GST-free price lists for business to business transactions. Such price lists are unlikely to be regarded as misleading or deceptive under the Act if:

it is an established practice of the business to provide tax-free price lists
it is clearly stated that the prices do not include GST
Item 3
Item 4

Consumers who are unable to claim input tax credits in relation to acquisitions must be informed of the GST-inclusive price prior to acquisition. This implies that all price lists must be GST-inclusive.

Quotes

If a business quotes a price to a consumer for a supply that will occur on or after 1 July 2000, the quote should be GST-inclusive.

Dual ticketing – (eg showing two prices for a single good)

A business is only able to show more than one price for a single good (eg dual ticketing) in the following circumstances:

The dual tickets are displayed for no longer than one month prior to 1 July 2000
The pre-1 July 2000 price is removed as soon as possible after 1 July 2000 (with the maximum period allowed capped at one month)
Each pricing ticket must clearly display the time period during which that particular price applies
The business must display prominent signs explaining to customers that a dual ticketing system is used.

Temporary dual pricing- (eg price on good is different to shelf price)

Temporary dual pricing may occur during the transition period in cases where the price shown on a good is different to the price shown on the shelf or at the counter. If dual pricing occurs, a business must display a prominent sign explaining that displayed prices have not been adjusted for the GST.

All shelf prices must be changed by 10 July 2000 and all prices of individual items must be changed by 1 August 2000 at the latest.

Q8. What should I show on my price ticket?

Answer: The price ticket must be GST inclusive and cannot be added at the cash register. The ACCC recommends that you show the amount of the GST as part of the price on the ticket.

Q9. What is the impact of GST on discounts?

Answer: GST is calculated as a percentage of the selling price. If the price of an item or service was $100 and after the discount the selling price $80.00, then the GST is 10% of the selling price, making a final price of $88.

Q10. What is considered misleading and deceptive conduct?

Answer: The following are examples of representations that may be misleading or deceptive in relation to the New Tax System:

Overstating the effect of the GST on a price change, eg. the price has increased by 15% because of the GST
Claiming that a product attracts the GST when it doesn't
Claiming that a business has to collect and remit GST when that business is not registered for the GST
Falsely claiming that the GST cost has been absorbed by the retailer