Even as Finance Minister Colm Imbert tried to convince citizens that the increased prices in food due to the changes in the Value Added Tax (VAT) schedule would be counter-balanced by increases in the pension cap and tax exemptions for low income earners, he announced that there may soon be a further reduction in the list of non-vatable items.
Speaking at a post-Cabinet press conference yesterday at the Office of the Prime Minister, Imbert said he may reduce the items exempt from VAT further and lower the rate of the tax.
Imbert said exemptions created avenues for cheating. Government as part of its manifesto promises reduced VAT from 15 per cent to 12.5 per cent but added processed food to the list of taxable items.
“The fewer exemptions you have, the fewer avenues you have for cheating. That’s what weakens the VAT system,” he said.
Using a power-point presentation to illustrate his point, Imbert said the average increase in the grocery bill of citizens caused by changes to the VAT schedule would be absorbed by Government’s other changes which gave almost 330,000 people more disposable income.
He said there was some confusion and misunderstanding with respect to the fiscal measures that the Government had introduced since it came into office.
He noted that as of December 1, Government had increased the cap on people who received both the National Insurance pension and the senior citizens pension to $5,000, giving approximately 27,000 senior citizens an additional $500 of disposable income.
“The next thing is we have increased the personal income tax allowance from $60,000 a year to $72,000 a year so people who make less than $6,000 per month do not have to file income tax returns.”
Imbert said that gave approximately 59,000 people making between $5,000 and $6,000 a month, an additional $210 of disposable income a month.
“When you take the total of persons in the under $6,000 bracket you get 302,000 people exempted from paying tax on their income.
He said the net increase in personal allowance and pensions were about four or ten times more than the additional charges incurred due to some goods being removed from the zero-rated list.
“The net effect of the changes we have made is positive. People will be better off under these measures than they were before the new People’s National Movement (PNM) Government came into power,” he noted.
Imbert said according to a Central Statistical Office (CSO) survey conducted last November, one-third of the country would be spending about $50 more at the grocery due to VAT changes.
He said the CSO surveyed 34 per cent of the population which spent about $700 a month on groceries.
He added goods purchased in the markets were exempt from VAT.
Asked whether the figure of $700 a month was realistic, Imbert said the figure was arrived at through the survey and scientific calculations.
Imbert also said both the Consumer Affairs Division and the Ministry of Finance would publish the prices of goods affected by the changes to the VAT schedule in an attempt to embarrass businesses who attempt to raise prices indiscriminately.
He said there was a basic misconception that the VAT system should be an instrument of social policy.
“It is not. It is simply a tax collection measure. We are trying to make VAT as efficient as possible,” he added.
He said a compelling and strong argument could be made to exempt VAT from any product but that was not the purpose of the VAT system.
“The VAT system is simply there to collect revenue and it has to be strong and robust because it has to counter balance the general lowering of income tax rates and the increases in personal allowance over the years,” he explained.
He said the PNM’s policy was to take the money from taxation and use it to support social programmes.