Daiso has announced today that it will no longer sells at its $2 signature pricing from 1 May 2022 and the following prices will be effective in tandem with the increase in GST from 7% to 9% as follows:
May 1, 2022, each item = S$2.14
Jan 1, 2023, each item = S$2.16
Jan 1, 2024, each item = S$2.18
Interestingly, Daiso has been selling since it started business in Singapore and till 30 April 2022, at $2 and absorbing the 7% GST (since its GST registration 1 April 2019). Its change in price could be triggered directly by the coming GST increase as well as rising business costs.
However, a change in the GST rate (or for a business getting on GST registration for the first time), is not a simple change in price for its products or services. There is a wider business implications which is not as simple as the GST compliance. In most GST registered business, the over-arching consideration for regulatory compliance may be the quick to-do-list that most focus on meeting, losing sight of the business and operational aspects.
- Customer price elasticity
The key consideration for changes in pricing is its impact on its business model and customers’ reception to the price increase. In competitive market of commoditised products or services and where demand is elastic, one needs to brace for significant customer attribution for such a move. Its business model and sustainability could be at risk with differentiated competitors’ pricing from both GST registered and non-registered competitors.
2. Operational challenges on new pricing.
The price of $2.14 is not a commonly settled denomination in retail business especially with 1-cent coin taken off circulation from 1 April 2002. Physical bank notes and coins accounted for approximately 6.1% (S$11.3b) of the total money supply*. In certain small value Quick Service Retail (QSR), a much higher % of customer prefers to and still settle in physical notes and coins. One would need to consider the physical handling of the coins at POS as well as the internal controls changes around the new pricing. This is easier said than done given that it is physically not possible for a customer to pay any multiples of cents except 5 cents. That brings us to the next point.
3. Adoption of rounding
One can elect to do a round up or down to the nearest 5 cents (or 10 cents or nearest dollar), which is essentially a business decision. For non-registered GST business, this is solely up to the business owner. But is this rounding practice allowed for GST registered business ? A GST registered business can choose to round the total GST (or total bill payable including GST) to be paid on all goods and services to the nearest cent (i.e. two decimal places) to facilitate cash payments by your customers as long as you apply this consistently. This cents rounding is very common in QSR eg petrol stations. IRAS is silent on dollar rounding, not specially disallowed or stated as an allowed rounding option.
It is not just a simple compliance change that all GST registered businesses need to consider for any GST implementation or rate changes to its operations. As in all regulatory changes, these have a wider impact on its business model, workflow, human resources changes (on job scope at front and back office) as well as its branding ($2 value branding no more?) and customers.
*Physical banknotes and coins over broad money supply in MAS settlement by non-banks 2000