'No VAT on food' raises questions
Prime Minister Kamla Persad-Bissessar's announcement that there will be no Value Added Tax (VAT) on food, from November 15, has already ignited the budget debate.
That debate centres on how the Government balances the economics of the country with the ruling People Partnership's political platform promises, said Vernan Baptiste, a chartered accountant and partner at Bertram Hadaway and Company.
At the Partnership's pre-budget rally last Saturday, the Prime Minister said the decision to remove VAT on food is an initiative designed to stem rising food prices and reduce the country's import bill.
Baptiste observed that the Government's policy required clarity given that many foods were already zero-rated.
He said the Board of Inland Revenue (BIR) already experiences problems with zero-rated products in its sophisticated ASYCUDA system so he questioned whether there will be a challenge in the implementation of the Prime Minister's "no VAT on food" policy.
Furthermore, he questioned how the Government intended to finance its budget if it was forgoing a form of revenue.
Apart from the energy sector, VAT is the second largest source of revenue for the Government. In 2010/2011, the Government collected $706.4 million in VAT for all goods.
Baptiste noted that the BIR has been bogged down by staffing problems and VAT. Further, there are three problems associated with VAT—collections, zero-rated products and refunds.
"There's not a lot of compliance. There is a lot of tax evasion going on," he told the Express in an interview yesterday.
For the BIR to successfully implement a policy, they must be given sufficient time, he explained.
To this end, he observed that there has been no consultation on changing the Land and Building Tax presently in place. This, he said, was an obvious source of revenue but there was a political price attached.
He also questioned where the Government would get the revenue for its projects given that its reliance on energy prices, which are volatile, is not a guaranteed form of stable revenue.
"They need to stabilise the revenue base. They can't afford to have another deficit," he said.
In his view, it is unlikely the country will achieve the projected one per cent growth announced by Finance Minister Larry Howai. Baptiste maintains that growth has been flat for the fiscal year.
He said the expectation being placed on Howai was no different from that on Republican candidate Mitt Romney in the Presidential race in the United States. Romney has sold himself to the American population as a successful businessman.
Baptiste said that Howai's background is that of a successful banker so the expectation is how he translates that success for the public purse. See Page 4.