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Food Store Vat Exceeds Forecast By Double Digits

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Food stores' early 12 percent VAT collections have exceeded predictions by double digits, with Super Value's owner admitting: "We were all wrong about breadbasket sales."

Rupert Roberts told Tribune Business that VAT "zero rated" food products were up to 30 percentage points below forecast as a percentage of total sales, resulting in supermarkets collecting significantly more Treasury revenue that forecast during the first six weeks of the 2018-2019 fiscal year.

He revealed that Super Value collected "54 percent more VAT than expected" for July, before the bread basket foods' "zero rating" took effect. And tax revenues collected from consumers during the first two weeks of August, after the VAT exemption took effect, were 33 percent up year-over-year.

These figures contrast sharply with Mr Roberts' prediction to Tribune Business on July 20, 2018, that the "zero rating" of "bread basket food items would slash Super Value's VAT take by two-thirds

He based this on the estimate that at least 50 percent of Super Value's product range would be VAT-free, and suggested this could apply to 100 percent of "Mom and Pop" food stores' inventory, given that they typically sold only breadbasket items.

However, Mr Roberts conceded that his and industry predictions that breadbasket items would account for 50 percent of sales had proven widely inaccurate to-date. He suggested the true proportion could be less than 20 percent, meaning consumers are purchasing more VAT-able grocery products.

He added that the breadbasket percentage could even be as low as 15 percent in locations such as Abaco, due to the high number of second home owners, renters and yachters who were likely less VAT-conscious than Bahamians when it came to their shopping patterns.

Mr Roberts also revealed that another "terrible concern" for the retail industry - that they would be unable to "cover" the 12 percent VAT paid on imported inventory at the border, thus requiring the Government to pay them a refund - had also failed to materialise to-date.

The sector had feared the Government would be unable to effect timely refunds, thus impairing their cash flow, and Mr Roberts described its ability to cover the "border VAT" as "a God send".

The Super Value chief branded the immediate results from 12 percent VAT as all-around "good news", since retailers' cash flows were not impaired; the Public Treasury was likely earning more revenues than anticipated; and the lower-than-expected breadbasket sales percentage would aid Dr Duane Sands' quest to make these foods healthier.

"I think we were all wrong about the amount of bread basket items we're selling," Mr Roberts told Tribune Business. "Definitely the Retail Grocers Association (RGA), of which I'm secretary, we're wrong.

"I'm pleasantly surprised that I'm wrong and how low it is. I say that because I thought it could run up to 50 percent, but I know it's now going to run under 20 percent. I know it's going to be under the 20 percents, and hopefully in the range of 15 percent."

Mr Roberts expressed hope that "the whole country" would follow Abaco, where bread basket items were on target to hit 15 percent of total sales. "In Abaco they have the tourism; they have the foreign residents and the yachters that are out buying from local stores, and they're not buying the bread basket items," the Super Value chief added.

"They're [Abaco's bread basket percentage] is going to come in lower than New Providence, which is great. We're selling to the tourists in this country at 12 percent and they're paying our taxes."

As for Super Value's experience, Mr Roberts told Tribune Business: "In July, we collected 54 percent more VAT than expected. And, in the first couple of weeks of August, we collected 33 percent more VAT than last year.

"Therefore, the 50 percent bread basket estimate was wrong. For the last 50 years we've been promoting bread basket items in the newspaper, the radio and TV. Now, the good news is we expect bread basket items to be less than 20 percent of sales, and hopefully they will be in the vicinity of 15 percent.

"We're collecting 33 percent more, which is indicative we over-estimated the percentage of bread basket items we are selling."

The 2018-2019 Budget 'zero rated' so-called 'breadbasket' food items as one of the protections designed to insulate lower income Bahamians from the VAT increase's impact, meaning the 12 percent has not been added to the final sales price from August 1.

This also benefits food stores, wholesalers and all elements in the local supply chain, as they also do not have to pay the new 12 per cent rate. If a product has 'zero rating' status, businesses are exempt from paying VAT on their input costs in proportion to the amount of inventory accounted for by these items - in a food store's case, the bread basket.

Mr Roberts, meanwhile, expressed surprise that retailers had largely been able to cover the "border VAT" on imported inventory without having to resort to government credit or refunds.

"We're covering 12 percent of VAT at the port, which means merchants do not require a refund. That was a big concern of merchants," he explained. "We're collecting the VAT to cover it, and that's a God send.

"We don't want the Government owing us and they're not able to pay, which strangles cash flow and puts small and big merchants out of business. This was a terrible concern among merchants that the Government would start owing us money they were not able to pay, summed up in one word: Barbados."

Mr Roberts also revealed that Super Value had to resort to using its bond, "without paying the duty" immediately, to move imported inventory from the dock after Customs' reclassification of codes and tariff headings - without informing major importers and brokers - caused temporary clearance issues earlier this summer for the private sector.

Still, Mr Roberts praised the Ministry of Finance and government revenue agencies for working with retailers, wholesalers and others to accomplish the transition to 12 percent VAT and associated 'zero ratings' with a minimum of fuss - something he described as "a first time in 50 years" event.

He added that there was "a great difference" between this government's approach and that taken by the Christie administration, as the current one was "not penalising us for mistakes" but working with the private sector to get it right.

Comments

DDK 2 months ago

I am so glad the 1% is happy!

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geostorm 2 months ago

"I think we were all wrong about the amount of bread basket items we're selling," Mr Roberts told Tribune Business. "Definitely the Retail Grocers Association (RGA), of which I'm secretary, we're wrong.

So glad that Mr. Roberts was big enough to admit that they were wrong about the VAT increase. Now just hope the rest of the country can allow the government to do it's job and stop being so overly critical. It took the previous government 10 years to mess up the economy, we should at least give the current administration an opportunity to fix it.

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ThisIsOurs 2 months ago

"tax revenues collected from consumers during the first two weeks of August, after the VAT exemption took effect, were 33 percent up year-over-year."

Duh....VAT increased by 60% and one apple went from 99c to 1.67.

Too simplistic. Consider a few things, VAT went up 60%, the lower priced items were excluded, the price was increased on the regularly priced items. People have to eat. Super Value's base prices went up dramatically in the run up to and, post VAT. So you have a base price increase added to a VAT increase. The real question is, are you collecting what you projected? I notice he said there's a 33% increase in collections, but the VAT rate was increased by 60%. Are these in line with projections? This government is doing nothing to fix the economy, you can see that clearly from the Oban fiasco, and the human resource selections being made to head finance. More of the same.

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ohdrap4 2 months ago

sure it is up.

it is because non- vatable prices are up lol.

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John 2 months ago

These figures contrast sharply with Mr Roberts' prediction to Tribune Business on July 20, 2018, that the "zero rating" of "bread basket food items would slash Super Value's VAT take by two-thirds

Obviously Mr. Roberts and his crew made two crucial mistakes when attempting to calculate the net effect of the Zero rating of bread basket items. Firstly while the breadbasket items may make up a large percentage of what Super value sells by number of items, The value of the goods compared to other items is far less. For example the average price of breadbasket items may be a can of corned beef at around $2.00. But super value sells steaks for average of $20.00 a pack, detergents for average of $8.00, other cleaning items and dry items that sell for upwards of $10.00 per item. And secondly while government is removing the VAT off the lower priced bread basket items, it is increasing the VAT on the higher priced non-bread basket items by 60 percent. So the net result is an increase in the amount of VAT collected and not a decrease as Roberts predicted. Now with the smaller mom and pop shops it is a little different. Since most of what they sell are bread basket items there will be a net decrease in the amount of VAT they charge. BUT also remember two things: While smaller stores pay VAT when they purchase goods and supplies, they do not revert Vat to the government like Super Value. So they wouldn't really be able to say how much impact the Zero rated items had on their tax returns, except if they were keeping records on their purchases. Maybe the wholesalers will be more able to give the information. ALSO since the smaller stores do not get a VAT return on their inputs, like store supplies and utilities, they have to factor them in to their prices and to compensate for the 60% increase on their inputs they must now pro rate this cost, either all over the VAT items or some on the zero rated items. This may mean that their prices will be a few cents higher than Super value because Mr. Roberts will have his VAT returned directly from the government. And if they fail to account for these increases in costs they will either consume their profits or even, inadvertently, sell at a loss. So while most stores were adding an additional 10-12% to cover for the 7.5% VAT, so now they will have to add 15-18% for the 12 % VAT. Remember they have to pay this money out up front so it does add to their cost of doing business.

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DDK 2 months ago

Well put. Telling it EXACTLY the way it is, John.

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Dawes 2 months ago

All this means is Mr. Roberts let his emotions do the talking back in June /July. I am sure his systems should have been able to tell him what % of his sales are breadbasket and what $ value those are, so he could then extrapolate the effect of the changes in VAT on his expected August sales.

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ThisIsOurs 2 months ago

I shop at super value. I don't buy sugar, corn beef, tuna , baby food , pampers, butter, milk or sardines. I do buy apples. He's talking about "total" VAT. To really understand the impact we'd have to know what percentage of his sales are bread basket vs not. Have buying patterns changed? And how much did the base price increase. Without that information just saying you're collecting 33% more is meaningless. If prices went up, you increased VAT, you'd expect "some" increase, the real issue is are you getting the amount you expected and how much is due to creased base price.

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ohdrap4 2 months ago

my buying patterns have changed.

I am now using powdered detergent to wash dishes, clean the toilet-- just buy the ones with NO phosphates and NO optical brighteners. This eliminates buying dishwashing liquid, bleach and Comet. VAT FREE.

I am now buying canned soup and evaporated milk for breakfast. VAT FREE.

I wash my hair with coconut oil bar soap and condition with corn oil and coconut oil, corn oil in greater proportion. VAT FREE. I also made some homemade deodorant.

The cat eats tuna and mackerel. Cheaper then cat food AND VAT FREE. But i get a small bag of dry food for emergency.

Butter and oils are vat free as well.

Sadly, eggs are not VAT FREE and I eat tons of that.

And fruit, well, i just stopped buying fruit, that is savings.

I stashed coffee and tea before VAT, so still using my stash.

I stashed sugar before the vat increase. what used to be 1.89 + 7.5 % is now 2.39 + 12% at super value.

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ThisIsOurs 2 months ago

Fruit prices have gone way up. I still can't believe Roberts is so gleeful about all the VAT he's collecting. But I can't not have fruits. I mean I could, there's no such thing as "can't", but fruits for me are like water. What I have done is spread out my shopping trips further and eating half a fruit for a snack instead of a whole fruit.

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ThisIsOurs 2 months ago

We're at the same point we were two years ago, the only people estatic about more VAT being collected are the ones who aren't feeling their empty pockets. As we can see from the Lucayan purchase, none of this VAT will end up anywhere near the deficit, the govt will find dumb "good idea" after "dumb good idea" to sink the money.

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B_I_D___ 2 months ago

none of us were given the 'clarity' of the zero rated concept until late in the game...the 'zero rated' items still get charged VAT when the items enter the country with customs...but, from that point on no one else can charge VAT on it, so the government is robbing the importer of their ability to reclaim the VAT at the time of sale onto the next person, increasing the VAT burden on the importer.

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ohdrap4 2 months ago

wow, that is customs duty disguised as VAT.
is that really how it is?

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B_I_D___ 2 months ago

Yeap...12% additional 'duty'...since it ain't really VAT anymore...

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DDK 2 months ago

Still, 12% is better than 25 or 30% plus VAT, so isn't it a sort of wash? Wonder what's going to happen after we 'accede' to WTO?

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ohdrap4 2 months ago

most bread basket items have long been duty free.

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JohnDoe 2 months ago

This description only applies to businesses that are non-VAT registrants. VAT registrants can claim a VAT credit for zero-rated imports or inputs even though no VAT is collected on sales. The net effect is to reduce the price on these zero rated items not to hurt importers.

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John 2 months ago

There is a saying in Economics that ‘Bad money chases away good money.’ To give a simple explanation Government claims that nearly half the taxes go unpaid and this is a big issue with customs and collecting duty and even vat. But when government continues to increases on the businesses that are paying the customs duties and VAT, they give the persons who are smuggling more advantage. Let’s say Super Value imports and pays duties and VAT on a case of juice. Roberts then sells that case of juice for $13.50. But the guy around the corner smuggles in his juice and pays no duty. He sells his juice for $11.50. Then government comes along and decides it wants to raise the tax on the juice by a dollar plus the 12 cents vat. So Super Value raises their price from $13.50 to $15.00. But remember the guy around the corner is not paying taxes (he still smuggling)! so there is no increase in his cost. But since there is such vast difference on his price and Super Value’s new price he decides to carry his price from $11.50! To $13.50. So he is now making $4.00 on the same case of juice while Super Value is only making $2.38 and yet he is selling for $2.00 cheaper. So Super Value starts to lose its customers to the guy with the cheaper price and government sees no additional revenue from its $1.12 per case increase in taxes on the case of juice. And so when taxes become too high, more and more persons will become willing and find ways to evade taxes. Persons who were bringing in the juice and paying taxes may now decide to buy from the guy with the cheaper price. And eventually the few. stores that are paying the duties will be squeezed out the market. And government revenue shrinks and it must resort to more borrowing. Government borrowing is expensive and is only putting an extension on bills that need to be paid. And usually when it finds its debt is spiraling out of control , a government will usually come back and increase taxes on the segment of taxpayers who were paying all along. That is why the tax burden on the average Bahamian is so heavy. That is why so many businesses are failing. That is why the economy remains stagnant. And that is why government cannot get a grip on its finances.

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ohdrap4 2 months ago

you got this guy's address?

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DDK 2 months ago

WOW! Deep but with merit!

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BahamaPundit 2 months ago

No matter how much money they collect, VAT will never be "good." It is a tax imposed on the Bahamian people due to 40 plus years of corrupt majority rule governments. It would be completely unnecessary, if corruption were not the chosen passtime of our ellected officals. When a Freedom of Information Act, Fiscal Responsibility Act and Campaign Finance Act are passed and in force, then and only then can we begin to celebrate. As long as not a single dollar of VAT is going to pay down the defecit, but to buy derelict hotels, there's nothing to be pleased about.

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Porcupine 2 months ago

Super Value is not THE economy. When I got home from the Cable Beach Super Value I checked my receipt. One large Honey Crisp apple was $3.69. VAT, on top of an already inflated price structure is part of the problem. But a big part of the problem. The issue is; are we getting our money's worth from our tax dollars. I would say resoundingly; Not a chance. Not all businesses can charge what they want and still make it. Households even less so. I thought the argument for VAT was paying down our debt and the very high amounts of interest we pay each year, before we even touch the principal. So, just who in this country is bearing this burden? Most astute economists understand that in a situation as in The Bahamas, the lower VAT rate would actually bring in more revenue overall because there is more money pulsing through the economy, generating more taxable sales. Unless of course there is little concern for the people, the economy and our leaders were trying to please those who don't live here. It is not just the last 10 years that have bankrupted our country. It is each successive government since independence.

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John 2 months ago

Another reason why Super Value and other business VAT returns for July and August and even September will be higher than expected (meaning the government will get more money) is that most of their inputs (items they purchased to sell or use in the business) were rated at 7.5% but they are paying 12% VAT to the government! So the government in these three or four months will be getting its 12% VAT plus the 41/2 % difference the businesses must now pay on their inputs. And then remember too Super Value and other food stores are now collecting ZERO VAT on items it may have paid 7.5% on in months prior, and 12% in July. So even though they paid the VAT when they purchased these items, they are not collecting VAt when they sell them. So yes, you may say Roberts dem get swing

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Sickened 2 months ago

I fear that even if VAT went up to 25% and income tax was introduced - our government structure would still manage to spend it all, PLUS a few hundred million extra a year. Our system of government and our mindset will never allow us to have a meaningful and sustained budget surplus. Chaos continues to stroll towards us. Prepare yourselves!

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DDK 2 months ago

Those in power over The People are a bunch of sick puppies. So blatant with their excuses and lies.

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TheMadHatter 2 months ago

Just cause she fat, das why she wind like dat.

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bogart 2 months ago

DESE FOOD STORES NEEDS TO BE INVESTIGATED....,!!!.....DESPITE....... AĹL DA VAT FREE .........DIS AND VAT FREE DAT ........THE PORE MAN WALKING OUT OF THE FOOD STORE ....WID EVEN LESS ..AN LESS ..... BAGS OF GROCRRIES......AN IT DONT TAKE NO FANCY ANALYZING.....AS TO WHAT GOING ON.....EVEN DEM BAG BOYS DONE KNOW EVEN IF DEY PACK ONE ITEN IN EACH BAG TO MAKE IT PLENTIFUL FOR DEN TO TOTE ...YINNA...DA CUSTOMER CAN STILL FETCH ERRYTING IN ONE HAND............. NEVER MADE NO SENSE NO HOW ....TO BE INVESTIGATING STORES IN ANDROS WHEN ...GOVT NEED TO INVESTIGATE NASSAU STORES FOR PRICE GOUGING......AN STILL NEVER CATCH NOBODY NOHOW,,,,,,LOL

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ThisIsOurs 2 months ago

That's right..., there was supposed to be a team of undercover agents....crickets

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John 2 months ago

There is no big secret to the cost of living in this Bahamas. And not just food stores. The government collects customs duties averaging 25% on most food items. Then on top of that they collect the 12% VAT.. And this 12 % is calculated after the inland freight, duty, ocean freight, insurance, and all other associated charges are applied to the cost of the goods. So YES government is collecting VAT on customs duties (or tax on a tax). So that's already like 40% taxes to your government. Then there are business license fees that is calculated on gross sales and is payable whether a business is profitable or not, and national insurance Then the businesses And those outrageous electricity bills! almost $50,000 in some stores..So you see most of what you spend for anything in this country goes to the government.. But yet they are broke and in debt.

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