The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Government has agreed to “clarify” Value-Added Tax (VAT) communications previously slammed as misleading by retailers, in a bid to avoid stoking tensions between the two sides and consumers.

Gowon Bowe, the Coalition for Responsible Taxation’s chairman, described this as the “big agreement” to come out of the pre-Christmas VAT meeting between Ministry of Finance officials and private sector industry heads.

Mr Bowe said it was vital that VAT-related advertising and communications did not pit the private sector against either the Government or their customers, with the latter potentially led to believe that price increases were the result of business ‘gouging’.

“It was agreed that there needs to be an improvement in the quality of communications, so there isn’t a sentiment of tension that’s going to build between the merchants and consumers from the perspective of price gouging,” Mr Bowe told Tribune Business.

“There may be some rogue persons, but by and large businesses are trying to bring this [VAT] in as seamlessly as possible.”

The Coalition chairman said communications to the public on VAT had to ensure “we are clearly saying prices are going to go up”.

He added that they could not give the impression - as some recent government pronouncements have done - that a few Customs duty reductions, and the switch from Cost, Insurance, Freight (CIF) to Freight on Board (FoB) as the basis for import tariff calculation, were “going to lead to a net reduction in prices”.

Mr Bowe implied that anything that “misleads the public into believing prices will go down, when they are going to go up”, could be disastrous for the Government’s VAT plan.

There would be severe consequences for public buy-in to the new tax regime if their expectations are not matched by reality, undermining confidence and trust in VAT - two vital ingredients to ensuring its acceptance.

“We have to make clear that if you’re going to increase taxes, it’s going to come out of the consumer,” Mr Bowe told Tribune Business. “It’s a government policy choice, not a business choice.

“The Ministry of Finance indicated communications would improve, and they’d make sure they clarified their communications so there’s no business versus consumer, business versus government.”

The agreement, reached between the private sector and Ministry of Finance at their December 23 meeting, came after furious grocery retailers blasted the Government for “throwing us under the bus” with misleading VAT statements.

Rupert Roberts, Super Value’s owner, and Philip Beneby, the Retail Grocers Association’s president, warned consumers that duty reductions would not lead to blanket food price cuts.

They said they had calculated that all the import tariff-related “tweaking” would only reduce overall food costs by 0.5 per cent, a statement also backed the following day by BISX-listed AML Foods’ chief executive, Gavin Watchorn.

Messrs Roberts and Beneby said that with many of the duty cuts falling on small volume, slow moving products, they would do little to minimise 7.5 per cent VAT’s ‘cost of living’ impact - unlike what the Government is suggesting via its representatives and media advertising.

“They are trying to deceive the public, and will blame the high cost of VAT on us. We’ve heard many representatives from the VAT Unit on the local radio saying they’ve reduced duties by 7.5 per cent to compensate for VAT,” Mr Roberts told Tribune Business last week.

“We want to warn the nation that this is a total deception. Merchants are on board with VAT, but the poor consumers are being deceived.”

Mr Beneby added: “They’re making these blanket statements, and giving the public the impression there will be a reduction on food items come January 1, when that will not be.

“It gives the public the impression a whole gamut of items has been reduced.”

To minimise VAT’s cost of living impact, the Government has announced numerous import tariff reductions on a variety of products, not just food.

And it has also altered the basis for calculating import tariffs, switching from the catch-all Cost, Insurance Freight (CIF) method to Freight on Board (FOB), a move again designed to lower duty payments and compensate for VAT.

However, the import tariff reductions themselves are far from being comprehensive and across-the-board. And, in the case of the food retail industry, Messrs Roberts and Beneby said the cuts had largely spared the products that generated greatest sales volume.

“The deception is that the Ministry of Finance have tweaked duties on three volume items by 5 per cent. Three volume items can’t bring down the cost of living on 35,000 items,” Messrs Roberts and Beneby charged.

“In the industry, 20 per cent of items represent 80 per cent of the volume. The majority of the items....., their tweaking does not amount to anything in bringing down the cost of food.

“They also removed the duty on freight. Well, 60 per cent of food store sales are bread basket, which is already duty free. On the other, 40 per cent of items - from 10 per cent duty to 30 per cent duty - it only amounts to minimum deductions of duty, and when you get up to 45 per cent duty there is a savings of 2.67 per cent, which are very slow items.”