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Inflation To Wipe Vat Cut Savings

By YOURI KEMP

Tribune Business Reporter

ykemp@tribunemedia.net

Rising inflationary pressures could wipe out any consumer savings generated by the VAT rate being cut to 10 percent, a supermarket executive warned yesterday.

Atwell Ferguson, Golden Gates Supermarket’s general manager, told Tribune Business that “any reduction in the VAT would be good for the consumer”. However, he lamented that the reforms implemented on January 1 - while slashing the rate from 12 percent to 10 percent - will also result in the levy being placed on so-called ‘breadbasket’ foods and medications.

He spoke after Simon Wilson, the Ministry of Finance’s financial secretary, told the weekly Office of the Prime Minister’s media briefing that the elimination of VAT ‘zero ratings’ and exemptions on breadbasket foods would benefit small, inner-city grocery stores where such products accounted for a high percentage of their sales.

Rather than being owed substantial VAT refunds, or credits, by the Government, Mr Wilson said the changes would “reduce the burden for small businesses”. They will now be able to ‘net off’ the VAT paid on their inputs against that collected from consumers as breadbasket items are now VAT-able.

“As you know on breadbasket items, which comprise for many small businesses [and] small retail grocery stores, the majority of their sales, those persons could not recover the VAT on the sale of those goods,” Mr Wilson said of the previous VAT regime.

“So many small businesses, small grocery stores, had to carry accounts receivables, VAT receivables, from the Government, refund receivables, for a long period of time, so that change was made, which really benefits small businesses.”

Mr Ferguson agreed that reintroducing VAT on breadbasket items makes it “much easier” for him to recover input tax payments on those items, given that the business previously had to wait months for refunds in addition to time spent separating VAT-able and exempt/zero rated goods.

He added: “It is much easier to assess if everything is straight across the board than just trying to figure out what is right or whatever. It is the customer who will be affected and will have the issue with it, because anything that goes up they will have an issue with it.”

However, Mr Ferguson warned that any forecast savings from the VAT rate cut may not be realised due to worldwide price and cost hikes. “Worldwide, inflation is starting to rise. Everything is starting to go up and I can’t really say when it is going to go down. But we are bracing and anticipating that it will go up some more,” he said.

Harry Bunch, Phoenix Supermarket’s general manager, said the VAT rate reduction to 10 percent is not a major concern as consumers will adjust rapidly to the change.

“With VAT being placed on breadbasket items, it will help our business to recover VAT from the Government. Consumers will argue today but will go along with the programme after the dust has settled,” he said.

“Last year, with COVID-19, people spent more in Christmas 2020 than they did at Christmas 2021. People spent a lot of money last year in the food store, especially during the time when the Government was trying to regulate what time people could shop on certain lockdown periods.”

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