The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Super Value’s president yesterday voiced optimism that the Government will strike a “mutually beneficial solution” over the food distribution industry’s VAT ‘exempt’ fears but warned that time is running out with the first relevant tax returns due in just six weeks.

Debra Symonette, speaking ahead of VAT’s elimination on uncooked foods which takes effect today, told Tribune Business she is “very hopeful” that a balance can be struck where Bahamians enjoy the benefits from the tax relief without “significantly increasing” merchants’ expenses and eating into their profits.

Any “additional burden”, she reiterated, will force retailers to increase prices on other products “to stay in business” - potentially negating the benefits shoppers will receive from slashing the VAT rate on all uncooked foods from 5 percent to zero with effect from April 1.

Ms Symonette told this newspaper that the Prime Minister and government officials, during their recent meeting with the Retail Grocers Association and its members, had signalled they were “willing” to come up with proposals to ease the industry’s concerns over the VAT ‘exempt’ tax treatment. However, with April’s VAT payments, returns and filings due as early as mid-May, she added that time was running out for both parties to agree on what solution to adopt.

And, turning to today’s elimination of VAT on uncooked foods, the Super Value president pledged that customers “will not be over charged” even though shelf and product ‘sticker’ prices may not reflect the tax break. She reassured that the 13-store supermarket chain’s point-of-sale system will show the correct prices as it was simply impossible to change ‘sticker’ prices on up to 100,000 different product items overnight.

Ms Symonette said the VAT cut will require Super Value to “assemble a special team” to work “a lot of hours” to effect the product pricing changes, which means an increase in overtime costs. Disclosing that the company was yesterday “going over every possible challenge that may come up”, she added that the transition to ‘zero VAT’ pricing on uncooked foods “is definitely going to be a couple of weeks”.

Government regulators, such as the Consumer Protection Commission and Price Control, are “aware” that Super Value and other food merchants need more time to complete the pricing transition given the sheer amount of stock involved. Ms Symonette said the agencies are working with the industry once “satisfied” that uncooked food prices in their POS systems are correct.

However, the Super Value president signalled that there are barely six weeks left to address the industry’s concerns over treating the elimination of VAT on uncooked foods as ‘exempt’ rather than ‘zero rated’. The former method means retailers, as well as wholesalers, face a major increase in costs because they will be unable to recover, or ‘net off’, the VAT they must pay on input expenses associated with uncooked foods.

“I would say we had a very fruitful meeting,” Ms Symonette said of the sector’s discussions with the Prime Minister and his officials. “They were unable to hear our concerns, and they are willing to go through some scenarios to come up with a solution that will be beneficial to us. They were going to work out something where we’ll be satisfied and they are working on it now.

“The first VAT returns for April [reflecting the uncooked food tax break] will be due on May 14/15. We’d need them to come up with something by that time, and we’d need to discuss it before that date to be sure it’s something we can work with.”

Ms Symonette declined to give details on what the Government may be working on, saying: “I wouldn’t want to give any specific methods they’d use but it’s all in regard to ‘exempt’ status. That’s the main issue. That’s what they’ll be working around. That would have a great effect on our bottom line. Our expenses would go up significantly.”

The Super Value chief had previously told Tribune Business that treating uncooked foods as VAT ‘exempt’ could cost the food store chain between $300,000-$400,000 per month, or up to $3.6m to $4.8m per year. This is because, while consumers will still be charged zero VAT, food retailers will no longer be able to reclaim the tax paid on inputs associated with uncooked foods.

This means that, if uncooked foods account for 50 percent of a merchant’s product or sales mix, they will be unable to recover 50 percent of the VAT paid on expenses such as electricity, rent, maintenance and overhead costs - an outcome that would significantly raise expenses and erode profits without increasing prices.

“I feel very hopeful and think we are going to come to a solution that can be mutually beneficial judging from the meeting we had,” Ms Symonette told this newspaper. “It’s important for the Government. They want to give the Bahamian people a tax break so that they can get a relief from the cost of living burden but, at the same time, they need to work with the retailers so we wouldn’t have an additional burden that will force us to increase prices.

“That would offset any benefit consumers get from the tax break. The last thing we want to do is increase prices. It’s only when we really, really have to that we take that measure.” The timing of VAT’s elimination on uncooked food has been made better by a Middle East conflict that threatens to increase prices across-the-board due to the impact on transportation (fuel) and energy costs, so the last thing the Government will likely want is to offset any tax relief benefits by its selected VAT treatment method.

As for implementation of today’s VAT cut, Ms Symonette said: “We intend to change everything as soon as April 1 hits. We will press the button, and the system will change. After that will be the challenge of changing the items on the shelves and getting all the stickers to reflect VAT’s elimination on uncooked foods. Everything right now is VAT inclusive.”

Besides product sitting on its 13 stores’ shelves, Super Value will also have to make pricing changes to all items currently sitting in their back rooms and its main warehouse, as well as those being shipped in now by container. “It’s going to take quite a bit of work,” Ms Symonette said. “We really have to put a good team together to get it done as quickly as possible.

“We’re just trying to go over now any possible challenges that may come up and how to handle them. We do have an implementation plan, and that’s the main thing: Getting it done. We’d ask the customers to be co-operative, and understand we have not been able to change the shelf items but the system will have the correct prices and that’s what they will pay at the register. They will not be over-charged.”

While the experience of slashing VAT on uncooked foods from 10 percent to 5 percent in 2025 will stand Super Value and other food merchants in good stead, Ms Symonette said changing sticker pricing for around 100,000 items, with many product lines having multiple brands and sizes, is no easy task.

“We don’t know how long it’s going to take exactly yet,” she added, “but there are definitely going to be a lot of hours and we are going to have to assemble a special team to work these hours. This is probably going to a few thousand dollars of overtime to get the job done. We’ve had to do this type of thing before when the VAT percentage was changed. It’s not new to us.

“We’re happy the customers are getting a break, and are sure they will appreciate it. We’re going to do what we have to do to accommodate them. It’s helpful that we have the experience, and we know what to expect and what we need to do, but it does not make it any easier to go through. We still have to put time and effort into it. It’s not something like touching a button. It has to be done.”

Asked to estimate how long the pricing transition will likely take, Ms Symonette said: “It’s definitely going to take a couple of week because of the number of products. It’s not something that can be done in days. We’re going to do out best to get it done as quickly as possible but there is no way to say it’s going to take two days or anything like that because it would be unrealistic.

“They [the Government regulators] are aware we need additional time to change the stickers and items on the shelf, so they are quite willing to give us the time to do that. They are co-operating with us. Once they know the prices are correct in the system and customers will not have to pay VAT on items they are not supposed to pay it on, they are satisfied.”