By NEIL HARTNELL
Tribune Business Editor
Super Value is bracing for a $1 million per month cost increase from Value-Added Tax (VAT) and other fees, its owner warning that the Government’s fiscal reform plans will “wipe out the food retail industry”.
Rupert Roberts, speaking after a meeting between the Retail Grocers Association and Ministry of Finance officials on Friday afternoon, said he expected the supermarket chain to incur $6 million in annual VAT input tax payments that could not be recovered.
And, anticipating an extra $6 million in annual Business Licence fees, based on what Ministry of Finance officials had told him, Mr Roberts implied Super Value could suffer an annual operating expense increase equivalent to $12 million.
His comments came as he and other leading retail figures told Tribune Business that the sector had made zero progress in getting the Government to address its concerns over VAT as presently structured.
The food retail/wholesale industry’s greatest fear relates to the fact they will only be able to recover VAT ‘input’ tax payments in proportion to the percentage of their inventory that is ‘VAT-able’ or taxable.
So-called ‘breadbasket’ items are set to be classified as VAT ‘exempt’, meaning that while the 15 per cent rate will not be applied to them, food retailers and wholesalers will be unable to claim back the ‘input’ tax paid on them.
With some food stores, especially the smaller ones, carrying inventories that will be up to 80 per cent VAT ‘exempt, these businesses will only be able to reclaim 20 per cent of their ‘input tax’ - a position likely to increase consumer food prices, and potentially lead to sector job losses.
Sources who attended Friday’s meeting disclosed that the Association presented an alternative to the Government’s plan, namely a 7.5 per cent “across the board” VAT rate on all food items, thereby eliminating the ‘exempt’ category.
Tribune Business was told such an option would still be “revenue positive” for the Government, but the Ministry of Finance team, led by financial secretary, John Rolle, rejected the offer.
“My take is that we’re not making any progress,” Mr Roberts told Tribune Business post Friday’s meeting. “I don’t think the Ministry of Finance is co-operating with us. I don’t think they’re listening, or are pretending they’re not hearing.
“They’re telling me, from what I’m gathering, that they’re going to give me a $6 million Business Licence fee, and another $6 million in non-refundable VAT. That’s $1 million a month more for the consumer, in addition to the cost of VAT, the implementation and running of VAT.
“I’m going to have the additional expense of administration of VAT, and any increase VAT brings on, and they’re saying it’s not going to increase prices,” the Super Value president added.
“They’re in a different world, or seem to be.”
Mr Roberts said the Bahamas was taking the exact opposite course to the UK. While the latter “tweaked” its VAT structure to help stimulate the economy, this nation was pushing ahead to implement it “in a recession”.
“From the public’s point of view, it’s not good news,” Mr Roberts said of the Government’s VAT position.
“Rupert Roberts will survive, but I feel sorry for the poor consumers, who are maxed out and are going to get whacked with the VAT stick.
“It seems they want to make the business community pay it, and especially the food industry, wholesalers and retailers, in addition to the public.”
Mr Roberts said the Ministry of Finance appeared to have “hardened” its stance on the ‘exempt’ issue, and added that the Bahamas appeared likely to emulate St Kitts with a 15-17 per cent cost of living increase post-VAT implementation.
“The way they’re talking, it’s going to wipe out the food retail industry, and they don’t seem to care,” he added. “I pointed out our 1,000 jobs, Gavin Watchorn at AML Foods pointed out his 750 jobs. It was pointed out to them [the Government] that we can’t exist, so it’s their call.”
Mr Roberts’ position was backed by Philip Beneby, president of the Retail Grocers Association, who told Tribune Business that Friday’s meeting saw “no real progress made at all”.
Industry players, he added, were estimating that VAT will increase their costs form anywhere between 6-8 per cent up to 10 per cent.
“There’s no change,” Mr Beneby told Tribune Business. “We’re still at square one. In its present form, it’s [VAT] not going to be a good thing for the retail grocer industry.
“There’s still the negative feeling about the introduction of VAT, especially as it relates to the ‘exempt’ part of it where we won’t be able to claim our inputs back, only a small percentage of it, so that’s a big concern.”
The Association president added: “There are estimates that VAT in its present form, and based on the anticipation businesses have at this point, there will by anywhere from about a 6-8 per cent increase in costs.
“Some feel it may be even as high as 10 per cent. That’s where we are right now.”
Many retailers fear already hard-pressed consumers will be unable to absorb the likely level of VAT-induced price increases, which will also push Bahamians to increasingly purchase ‘breadbasket’ items.
Many of these products are price controlled, upon which retailers usually lose money. This will result in increased profit and margin squeezes, with consumers also potentially driven away from more costly, non-VAT ‘exempt’ items, which will have seen price increases to compensate for the ‘breadbasket’ losses.
And reduced profitability, in turn, will result in food store retailers reducing staff levels to control costs.
“Over a period of time, it’s going to cause the unemployment rate to rise,” Mr Beneby said. “The business would only be able to survive if they cut back or find the nearest exit door.
“The consumers’ pay cheque will decrease without a doubt. Everything else will be going up, but the pay cheque will remain the same. It’s not good; it’s not good for the industry. It is what it is right now. We’re waiting to see as we move forward if any changes are made.”
Another food retail source, speaking on condition of anonymity, said of Friday’s event: “It was a very big meeting, but absolutely nothing was achieved.
“The concern that the Grocers Association has is the increase in costs. The consumer does not have the ability to absorb increased prices.”
The source said all food retailers were seeing a sales trend of consumers shifting away from discretionary, non-core items with their spending.
And they pointed out that food stores with an 80 per cent VAT ‘exempt’ inventory would effectively see a 12 per cent increase in key costs, such as electricity bills.
“Our fear is the public will not absorb these costs, we’ll have to absorb them, and there’s great concern about job losses,” they added.