Shal­iza?Has­sanali

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."