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VAT, chocolate & Caricom

By Andre Bagoo Sunday, November 18 2012

THE MEASURE to remove Value Added Tax (VAT) from food apparently does not apply to chocolate because it has been deemed a luxury by Prime Minister Kamla Persad-Bissessar.

“We have left out the luxury items, so chocolates and lobster and caviar would not be included and alcohol will not be zero-rated,” the Prime Minister reportedly said as she purchased groceries last Thursday at a supermarket.

All over the country, chocolate lovers were aghast! It is unfair to lump chocolate with things like caviar and champagne, they protested. They pointed out that most chocolate consumed on a daily basis is within an affordable range. For example, the chocolate snacks children eat, or those nifty fruit and nut bars, or the chocolate-covered wafers selling everywhere.

On the flip side, it is true that some pralines can be very pricey and people tend to eat chocolate on special occasions. Some of the most expensive chocolates in the world are made in Europe using cocoa beans that were first grown in this country (for example, the Trintario). Ironically, some of these expensive brands are not generally available in local supermarkets, but I know many German friends who regularly enjoy them.

But whether or not we deem chocolate “luxury”, perhaps it is a good thing that VAT still applies. While chocolate can have its perks, it also has its dark side (and I do not refer here to dark chocolate!). Diabetes and other chronic health problems are being fuelled by our eating habits. The State should listen to Independent Senator Harold Ramkissoon, who recently called for VAT to stay on certain items like fries, which, if consumed in excess, pose risks.

One thing the State is considering is the removal of import duties from food, in addition to the VAT removal.

On Friday, Persad-Bissessar told Parliament the State was reviewing the imposition of Caricom’s Common External Tariff. That tariff is a rate of duty applied by all Caricom members to a product imported from a country which is not a member of Caricom. In other words, it is a bid to encourage more Caricom trade among the region, as opposed to far and wide.

Arguably, this tariff is a key part of the idea of a Caricom single market. This is more so given the current environment where some believe Caribbean integration has not been as successful as it could have been (for example, you can still get horrors getting a plane flight to some of our Caricom neighbours due to poor inter-regional connection). For this reason, this move by the Government is highly likely to be resisted at the Caricom level.

Yet removing the tariff is also likely to be opposed by some in this country. This is because the point of the tariff is that it applies to imports, including imported food. The State has stated, ad nauseam, that the food import bill is about $4 billion. By removing a duty on imports, you make them cheaper and encourage greater demand for them. Imported food can then more easily compete with food grown domestically. This defeats the purpose of trying to reduce the food import bill.

If, however, imports remain subject to duty, while food grown here is VAT free and also not subject to duty (since no importation is involved), then this should give local producers an edge over importers. That would be a sweet deal for local farmers.

Email:abagoo@newsday.co.tt

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