Australian Competition and Consumer Commission (ACCC)
When you are wearing your legal hat, you will be thinking about all the contracts
you have and about the pricing guidelines from the ACCC. GST legal impacts on every area
of the Business Cycle:
transactions - ask your lawyer to review any contracts with suppliers or customers
which may change with GST
measuring - when calculating your prices be sure that you follow ACCC guidelines.
Check that your suppliers do this too
input - ask your lawyer to review the wording on contracts with suppliers/customers
recording - you will need to keep a record of your pricing decisions and Source
Documents for your purchases so that if asked you can explain any price changes to the ACCC
classifying - check that customer pricing policy accurately reflects GST and
other indirect tax classifications before and after July 2000
reporting - you may be required to report to the ACCC if your pricing policy is
challenged
decisions - do not enter any transactions that will legally bind you until you have
received advice from your lawyer.
Contracts that legally bind
Do not enter into any transactions that will legally bind you until you have received
advice from your lawyer.
Review contracts for GST impact
If you use contracts with your suppliers and customers then you must have any
existing contracts reviewed by a lawyer to:
check which ones might change under GST
assess the full impact of these changes
identify those that cannot change and what this means for you
see how the prices are calculated.
You must also have the lawyer review contracts before you sign them to check the:
cost savings and escalation clauses that relate to pricing
standard wording you generally use in contracts with your customers
standard wording used by your suppliers
implications for contracts that cross over 30 June 2000.
You should have escalation clauses in your contracts to maintain your margins if you
are the seller. If you are the buyer, you should negotiate a cost savings clause in
the contract to make sure that your supplier's cost savings are passed on to you.
Consider this example
BB's Cleaning Services wins a contract with the local RSL Club to clean the
club premises. They sign the contract on 1 November 1999 and agree to a price of
$1,100 per week for the next 12 months. There is no clause in the contract for price
reviews in a GST environment.
From 1 July 2000 BB's must pay $100 each week to the ATO for GST. If they had an
escalation clause in the contract BB's could have increased the charge to the Club
and maintained their margin. Without an escalation clause BB's only make $1,000 per
week instead of $1,100 as they had originally budgeted to receive.
The ACCC pricing guidelines
The Government wants consumers to gain the full benefits of the changes to various
indirect taxes. If prices need to increase, any rises should be no greater than
necessary to maintain your margin.
The ACCC can impose significant fines on a business that takes unfair advantage of
the transition to GST.
You need to consider how the GST will affect your prices and then keep a written
record of your decisions and the reasoning behind them. You will then be able to
explain those changes to the ACCC if they ask.
The ACCC have
indicators to show you have breached the rules
The ACCC guidelines on Price Exploitation and the New Tax System are available
at www.accc.gov.au. These guidelines tell you what to look out for yourself or
with others.
A brief summary of what the ACCC expects is that you:
make price reductions immediately and pass
on the full benefit of indirect tax reductions to consumers
must take full account of indirect tax
reductions when increasing prices
do not put any markup on the GST component of prices
reflect only actual tax increases in prices
should not use the move to GST to increase net margins.
Avoid pricing
misrepresentations
Your business must take care not to misrepresent the impact of the tax changes
on prices. Some examples of misleading or deceptive pricing claims that the ACCC has
set out include:
For more information:
contact the ACCC Hotline on 1300 302 502 or access the website www.accc.gov.au
