The Tribune

By NATARIO McKENZIE

Tribune Business Reporter

nmckenzie@tribunemedia.net

EXEMPTIONS under the proposed Value Added Tax (VAT) systems would “not be in the best interest of the government or businesses” according to the head of the Retail Grocers Association, who argued that the potential to recover only 20-25 per cent of their inputs would eventually drive some retailers out of business.

While major grocery retailers have been advocating the position, it was again brought to the fore by New Zealand tax experts last week who noted that a one rate, no exemptions framework had worked “extremely well” in that country. While saying that he not seen the comments by Dr Don Brash and Mr John Shewan, Philip Beneby, head of the Retail Grocers Association, told Tribune Business that the position was one the group had been advocating to the government.

“This is what we have been saying to the government, just have one rate for imports and don’t have any exempted items. They don’t seem to want to do that for whatever reason. Our take on it is that they saw it as being politically correct to do that but it’s not in the best interest of the government, neither the businesses to do that. We didn’t think it was a good thing,” said Mr Beneby.

He went on to explain: “When the government has exempt items that’s money that they are not collecting on the exempt items, they are trying to collect it someplace else. What will happen in the food industry is that we won’t be able to claim our VAT input in that proportion between the exempt and the non-exempt. Whatever our VAT input is, we can only claim back the percentage disparity between exempt and non-exempt. For us who are carrying between 75-80 items that are exempt it means we can only claim between 20-25 per cent on our VAT inputs. Apparently that is where the government is hoping to make up on the short fall for the exempt items that they allow in the country.”

Mr Beneby said: “That will drive some us eventually out of business. You find a lot of the smaller operations in the grocery business, that’s basically what they are selling, bread basket items.”

Dr Don Brash, a former political leader and one of New Zealand’s leading economic and financial policy advisors, said last week that under that country’s tax regime, there were virtually no exemptions except for financial services and rent. Dr Brash said: “If you have a large number of exemptions your rate has to be higher. With a smaller number of exemptions the rate will be lower. We found that the one rate, no exemptions framework worked extremely well but what the government does decide is up to them. A lower rate of VAT will obviously affect final prices but our experience has been that it is better to have a no exemptions and a lower rate than a high rate with a lot of exemptions. If you want to minimise compliance costs, go with a lower rate and no exemptions.”