Our dumb dictator has used the words ‘transfer pricing’ as if he was sure he knew what it meant. He seemed to think it explained the whole problem with Fiji Water.
A friend of mine, a university graduate, was happy to admit to me that he didn’t know what it meant, so he asked me to explain it.
If such a fancy idea is important to Frank, it must be important, so I’ll give it a try.
What Frank is claiming is that the price that Fiji Water sells its cartons of water to its American sister company at is artificially low. It must actually cost more than $4 a carton to produce and therefore the profits made by Fiji Water in Fiji must be understated.
Frank isn’t basing this on any knowledge he has of producing water or any other product. What he’s looking at is the price he sees for Fiji Water on the shelves of US shops. It sells for more than other mineral waters, so Fiji Water must be understating the price.
But if this is true, all Frank has to do is get all the facts, all the costs that are recorded by Fiji Water and show where the true cost of production is understated. Is Golden Manufacturers Limited understating the cost of the cartons? Are the plastic bottles bought from a related party at an artificially low price?
This would be a routine job for FIRCA, who could use well established international guidelines for assessing ‘real’ costs. If Fiji Water didn’t meet the guidelines they could take them to court and order payment of higher taxes.
In fact this what Chaudhry started doing but the case stalled, no doubt when it was realised that FIRCA couldn’t establish the facts.
Ironically, Aiyaz’s too clever work with the Commerce Commission to control prices of food probably means that the regime has set very low benchmarks for business costs in Fiji.
What Frank doesn’t understand is that there are big costs in marketing anything, especially water in North America, where a very pure, safe product is available free from the taps. The only thing harder would be to sell ice to Eskimos. But anything can be sold if you have big enough commissions to sales staff.