VAT on food coming back
By Andre Bagoo Wednesday, October 3 2012
THE REMOVAL of 15 percent VAT on food is not a permanent measure but is meant to be temporary and will return once inflation levels are under control, according to Minister in the Ministry of Finance Vasant Bharath.
“It is a temporary measure to reduce the price of food and reduce the burden on the most disadvantaged,” Bharath, who chairs the inter-ministerial committee set up to deal with the issue, told Newsday yesterday.
Bharath said a meeting of the committee is due to be held to “work out all of the time-line issues” in terms of a possible date of return of VAT on food, but November 15 remains the planned date of implementation. “In the same way that we signaled VAT will be removed, we will give the population adequate notice that, for example, in five months time VAT will be put back on,” he said.
During Monday’s Budget speech, Minister of Finance and the Economy Larry Howai said the VAT removal came in the context of still high inflation rates.
“He too noted the measure would be not be permanent.
“The increased levels of inflation stemming from our increasingly imported food requirements have had a harmful impact on our citizens, particularly our most vulnerable, as they sought to manage the business of their everyday lives,” Howai told MPs.
“Consequently it is proposed on a temporary basis that Value Added Tax (VAT) would be removed from all food items except luxury items and alcoholic beverages.”
Howai’s remarks came after Prime Minister Kamla Persad-Bissessar’s announced on Saturday at a political rally in Chaguanas that VAT on food — except alcohol and luxury items — would be removed. She noted that in 2008, when in Opposition, she had called for the removal of VAT on food as a “short-term” measure and then said, “with effect from November 15, 2012, VAT on all food prices be removed. VAT on all food prices (will) be removed.”
However, speaking notes later issued by the Office of the Prime Minister, quoted the Prime Minister’s first draft as being more specific saying, “I wish to advise that effective November 15th 2012 VAT will be removed on all food items as a short-term measure whilst we continue to work to grow our food production industry.”
Wade George, Tax Managing Partner at Ernst and Young, yesterday said a temporary removal of VAT would be very difficult to withdraw.
“I think it is very difficult to withdraw it once it is in play,” he told Newsday.
“It is hard to take back something when you’ve already given it.”
There also remains the issue of whether the VAT rate of 15 percent would have to be raised to compensate for removal of VAT on an estimated 7,000 food products.
But government officials yesterday said an increase in the rate of VAT was not an option “at this point”.
At a Trinidad and Tobago Chamber of Commerce post-Budget panel, held at Crowne Plaza, Port-of-Spain yesterday, featuring Howai, George queried budget figures which show that while Government plans to remove VAT on all food items, it is still anticipating an increase in revenues from VAT collection.
According to the Estimates of Revenue, tabled in Parliament on Monday, the State plans to earn $6.6 billion in revenue from VAT in 2013, up from $6.4 billion in 2012.
George queried how this extra $200 million would be collected if VAT is being removed from food items.
He also noted that the list of items to become zero-rated has not yet been finalised and asked how the estimate of revenue was calculated without any certainty in relation to the loss of revenue due to zero-rated items.
(On Monday, Food Production Minister Devant Maharaj said the list of items to be zero-rated has not been finalised by the inter-ministerial committee charged with the task.) Howai responded to these concerns, saying the figures in the Budget estimates were based on projections of heightened economic growth.
“The reason VAT increased was, I think, because there may have been a basic assumption around rate of inflation and growth in the economy that is factored into the assumptions to determine what the value added figure is and then you deduct what you expect you are going to lose with the zero-rating of food to come back up with the net number that we would have shown,” Howai said.
“Those are some of the technical issues which, when you read the Budget, you don’t really explain all of those issues to people while you are reading.”
Bharath said the question of an increase in the rate of VAT is “not an option at this point in time” for Government, but would not rule out the possibility.
“What we want to do is to try to keep the cost of living down,” he said.
“And it is not just food that is subject to VAT. An increase in the VAT rate would put the cost of living up and would defeat the purpose of removing VAT.”
As of yesterday, the Bharath-chaired committee met with representatives from the Trinidad and Tobago Manufacturers Association (TTMA), the Supermarket’s Association and the Trinidad and Tobago Chamber of Commerce.
The question of removal of VAT from food has been the source of a political tit-for-tat since it was announced on Saturday.
On Sunday, Opposition Leader Dr Keith Rowley accused the Prime Minister of “deception” in relation to the announcement, citing the fact that some items of food are already zero-rated (about 50).
However the Prime Minister, in turn, accused Rowley of deception stating there are 7,000 items currently being taxed.
In his presentation to the Chamber yesterday, Howai warned the population that sooner or later everyone will have to “pay more” as the State sets out to review the regime of taxation after a 12 to 18-month period.
“There will be dislocation,” the Finance Minister warned. “There is no question that as you move forward some people will have to pay more. I do not know if anybody will have to pay less.”
He continued, “We live in a society where we have free a lot of things: free education, free health, low water rates, low electricity.
I mean we all know it, so I don’t need to go through it. But we probably have to get to a place where we are going to have to start coming to terms with these realities. But it is better to have to deal with those realities in the context of a growing economy in the context of increasing incomes and a diversification of the stream of earnings.”
He continued, “Over the next two years we are going to definitely review and revamp our entire tax structure.” He said consultation would be key, remarking, “The new system or whatever system we have will affect each and everyone of you here individually.
You will never get full agreement but at least everyone will be onside, understanding what is happening in terms of contribution to the share of revenue that is used for the social good. So yes, we are looking at the issues of how we address that.”
In his 2013 Budget presentation at the International Waterfront Centre, Port-of-Spain, Howai made clear the scope of the tax regime review, making clear that it would include Land and Building taxes.
“This review will cover the entire tax system, including tax policy, administration, and enforcement,” Howai said.
“It will encompass all sources of government revenue and focus on tax revenue, including personal and corporate income tax, Value Added Tax and excise duties as well as capital and property taxes.
“It will also examine the net benefits to the Government for charging fees for the goods and services it provides.”