By NEIL HARTNELL
Tribune Business Editor
The Government’s revised Value-Added Tax (VAT) ‘inclusive pricing’ conflicts with the Price Control Act, a leading retailer yesterday warning it would create “tremendous consumer confusion” and unnecessary multi-million dollar spending.
Gavin Watchorn, chief executive of BISX-listed AML Foods, told Tribune Business that the two-month ‘extension’ for Bahamian retailers to comply with VAT ‘inclusive pricing’ “does not really alleviate our concerns”.
Echoing other food retailers, Mr Watchorn added that while the Ministry of Finance release indicated it had been listening to private sector concerns, in reality it had failed to “ensure that everyone is on board” with VAT and how it will work.
In particular, the AML Foods chief questioned how different pre-VAT and post-VAT prices for the same items could be permitted on retailers’ shelves, given that this was a ‘policy’ or ‘guidance note’ that conflicted with - and would be overridden - by the Price Control Act.
“For this two-month grace period, there will tremendous confusion,” Mr Watchorn told Tribune Business via e-mail.
“There will be different prices for items. As a retailer, you must put yourself in the shoes of your consumer. Consumers want simplicity – they will not react well to perhaps seeing two different prices on the shelves.”
And he warned: “More importantly, the Price Control Act is a law of the Commonwealth of the Bahamas. A policy guidance note asking consumers not to exploit price difference, as far as I am aware, does not overrule a law of this country.
“So, unless there is a change to the Price Control Act, I doubt very much that the policy guideline will be effective or even enforceable.”
Mr Watchorn was responding after the Ministry of Finance, in a concession to retailers’ concerns that it would be impossible to convert all their shelf/stock inventory to VAT ‘inclusive pricing’ by January 1, promised to be more lenient.
In a statement, John Rolle, the Ministry’s financial secretary, said the Government realised many businesses would “need extra days, and perhaps weeks” beyond January 1 to complete the re-pricing of all inventory.
He then promised that the private sector would be given until February 28, 2015, to comply with VAT ‘inclusive pricing’ demands, with enforcement of this requirement starting from March 1.
Mr Watchorn, though, expressed surprise that Bahamian food retailers and wholesalers had to find out about this latest policy change via Tribune Business, as no one in the industry had been consulted about it.
“While on the face of it, it appears that the VAT department has ‘listened’ to business concerns, this change really will make no difference to businesses,” the AML Foods chief told this newspaper.
“The imposition of direct taxation on Bahamian consumers will be a significant cultural change for our country. Normally, when you are trying to effect change of great magnitude, you would have all of the stakeholders work together to ensure that everyone is on board. This process has not happened with retail grocers.
“Meetings were held, participants were informed of the rules and regulations, concerns expressed were ignored and everyone left frustrated,” Mr Watchorn added.
“Then, only as the noise in the media became louder, changes are made and the stakeholders found out about the changes in the newspapers. The process should not work like this, and leads to suspicion, animosity and confusion, as changes continue to be made with three months left to implementation.”
The Ministry of Finance also confirmed it will allow stores to carry some items showing old, pre-VAT sticker prices.
Mr Rolle added that companies will have to use bin tags, flyers and other means “to openly advertise their VAT inclusive prices”.
He added: “The VAT Department is urging that notices of price changes be posted in stores before the end of 2014.
“As price tags are updated, customers may find some items with old stickers still in place. However, once the difference between the new and old stickers prices exactly match the amount of VAT that must be paid, consumers will not be allowed to exploit this difference by demanding the lower prices.”
Mr Watchorn, though, said all this would have little practical benefit. “Having a grace period where retailers can use bin tags does not really alleviate our concerns,” he explained.
“We are still required to change thousands of bin tags and signs in each store, and asking us to erect signs of the new prices prior to December 31 simply will not happen. The Christmas period is the busiest time of the year for us, and we will not have time for that as well as run our business efficiently.”
Then, suggesting the solution advocated by virtually every member of the Bahamian retail industry and private sector, Mr Watchorn told Tribune Business: “The very simple approach to this is to have VAT exclusive pricing. Consumers will see the price on the shelf and know that there be 7.5 per cent added to this at the register. All Bahamians are very well used to this system when they shop in the US.
“Any retailer I have spoken to has said that they can make this change to their software very easily and effectively, but under VAT inclusive pricing, there will be millions of dollars spent by businesses amending their software and incurring additional costs for price changes. And when the VAT rate is increased, we will go through this whole process again and again…….
“Business owners know how their business operates better than anyone else. The business community generally understands and agrees with the need for additional government revenues. We are being told that we will be the tax collectors for the Government. Given that we play this very important role, we believe we should have some voice in the framing of this whole process.”
Mr Watchorn’s views align closely with those expressed by Super Value owner, Rupert Roberts, and Retail Grocers Association president, Philip Beneby.
The latter reiterated that the industry and Ministry of Finance needed to work together to ensure the VAT transition was as smooth as possible, given that the private sector would be acting as the Government’s tax collectors.
“It’s a work in progress,” Mr Beneby told Tribune Business. “It is going to have to take the efforts of both the retailers and Ministry of Finance to work together for there to be harmony and a transition process that benefits each of us.
“We are collecting the taxes for the Government. Whatever it takes to make that effort as easy as possible, we’re going to have to do that, and it’s not an easy transition..... I’m sure at the end of the exercise everything will fall into place.”
Mr Roberts, meanwhile, said he suspected the Government would relent once VAT ‘inclusive pricing’ started to cause “chaos”.
“I think they’ll let the merchants sort it out for them, the chaos they’ve created,” the Super Value owner added. “Nobody can figure out why they want it this way. We’ll see how it plays out. We’ve got October and November, two months, to settle it. December is out of the question.”