Tuesday, December 23, 2008

GST discounts and bad maths

Over the last few years, I've seen a few retailers host sales that proclaim "No GST" or "We'll pay your GST!" followed by a promise of a 12.5% discount (because, after all, GST is 12.5%, right...?).


Hopefully most people will realise the problem here. If you add 12.5% of something to itself, then taking that bit off again is only an 11.1% discount. A 12.5% discount is more than the GST component.

So what does this mean for the customer? Can we expect a full 12.5% discount? Or should we be happy with the retailer only paying the GST, an effective discount of only 11.1%? Advertising law suggests one could easily claim the full 12.5% discount in this case.

This ambiguity led me to write to a major retailer (who shall remain nameless) who responded with the following:

As you correctly point out, if we truly gave the customer just the GST component back, it would be 11.1%. We give the higher amount to make the concept very simple for the majority of people who find the GST calculation difficult. We appreciate that you are not one of those people, but hope that you enjoy the extra 1.4% anyway.

Personally I'm still not happy with this. If a retailer wants to pay your GST as a promotion, that's fine, but I don't think it should be followed by a claim of a 12.5% discount. And if they really want to give you a 12.5% discount because they think there's something magical about that number, then don't mention GST, because it's irrelevant.

1 comment:

rivery said...

Oh dear. David, that's very 'interesting' :P Happy new year!