Consumers can expect to pay much more than $50 extra for their groceries because higher business costs will lead to higher prices when VAT is applied. Finance Minister Colm Imbert, in presenting the Finance Bill 2016 in Parliament on Friday, stated that consumers would pay $50 more on their monthly grocery bill when the new VAT measures are introduced.
Economist Dr Vaalmikki Arjoon, yesterday, dismissed the claims by Imbert, saying we needed to look at the bigger picture.
“Apart from the reintroduction of VAT on these items (zero rated), the cost of living is going up due to higher transportation costs, taxes and utilities. Retailers, supermarket owners and their suppliers are affected by this as well. Since the suppliers will be faced with higher costs, they can pass this on to the supermarket owners in the form of higher prices, which will then be passed on further to the consumer.
“The VAT changes will affect all members of society, as it represents higher prices and household costs. Some basic amenities will be more expensive and this will soon be accompanied by higher utility costs. Naturally, those in the lower income groups will be most affected.”
The re-introduction of the property tax and the Business and Green Fund levies, Arjoon said, also meant that consumers would have to spend more money to cover their living expenses.
“So when the average consumer expects to pay 12.5 per cent he may in fact be charged more by certain retailers, owing to their higher business costs.”
Arjoon and food importers yesterday warned that although VAT was cut by 2.5 per cent across the board, consumers will now have to dip deeper into their pockets since 99 categories of food items have been removed from the zero-rated list and the overheads and mark-ups applied by businesses will push prices up. Lower income earners will be hit the hardest.
Meanwhile, economist Robert Mayers said, “It was a stupid and foolish statement to make” that consumers will only spend $50 more, because everyone’s basket would be different. “So to put a figure of $50 is foolishness.”
Last August, at the launch of the People’s National Movement manifesto, Imbert and party leader Dr Keith Rowley announced that they would reduce Value Added Tax (VAT) from 15 to 12.5 per cent. Now in office, the PNM has delivered on its promise to slash VAT. The reintroduction of VAT on zero-rated items by the PNM, however, has been a bone of contention.
In 2012, the then government led by Kamla Persad-Bissessar had announced that VAT would be removed from 7,000 grocery items
Arjoon said placing VAT on zero-rated items has multi-dimensional implications for the economy.
“The spirit of the VAT Act was to earn tax revenue from value-added items and not basic food commodities. If reviewed in this context, then some of the luxury items can incur VAT, while basic food items ought to remain as zero rated, especially items such as mauby, orange juices, salted butter, table salt, cocoa and coffee to name a few.”
Arjoon urged consumers to be more vigilant when spending and to compare prices for certain items which may be sold at a higher cost at some outlets. He also called on citizens to put aside some money for a rainy day.
On the down side, Arjoon said when consumers refrained from spending, this could lower business sales.
“Some may be forced to downsize their operations and lay off workers owing to increased expenses. There is also a possibility that some can cease to operate, as they can find it difficult to meet their overhead costs and can default on other payments.”
During this recession and falling consumer expenditure, Arjoon said it would be more prudent for businesses to enhance their cost management and controls in order to minimise wastage.
“They can also explore the possibility of enhancing their innovation and enter into new markets, to provide services that are lacking locally but may stimulate local demand. This can offer a vital competitive edge and improve their long-term growth prospects.”
Stating that T&T had foreign exchange reserves equivalent to a year's worth of import cover, Arjoon said if the use of foreign reserves continued to accelerate, we would see a further depreciation of our currency, which would have a direct impact on the prices of imported items.
“Indeed, prices will increase further as businesses will be faced with a higher import bill. Moreover, businesses might continue to find it difficult to obtain foreign currency in a timely manner to meet their payment obligations to their foreign suppliers. They will become more cautious with their order levels and might also have to seek out new suppliers who would be willing to offer better reasonable credit and payment terms.”