The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Businesses should not have timed price increases to coincide with Value-Added Tax’s (VAT) implementation, its Comptroller said yesterday.

John Rolle said the Ministry of Finance was sticking to its position that it was “unreasonable” for the private sector to blame price rises greater than VAT’s 7.5 per cent levy on extra costs related to the new tax.

And Mr Rolle, who is also the Ministry’s financial secretary, told Tribune Business that “reasonable” businesses would seek to recover any VAT-related compliance costs over time, “not in one shot”.

“I would avoid having both timed together,” Mr Rolle said of VAT and price increases designed to boost private sector margins/profits.

“It would not be reasonable to blame increases above and beyond VAT on the tax itself. We accept that in some cases businesses will have fixed costs making the transition to VAT, but in most instances businesses will try and recover those costs over a reasonable amount of time, not in one shot.”

Mr Rolle added that it was also not necessary for Bahamian businesses to increase their prices prior to VAT’s January 1 implementation, as reports suggested many did.

This is because VAT is designed to be paid 100 per cent by the end-consumer, with registrant businesses recovering - or ‘netting off’ - all the tax paid on their inputs (factors of production).

As a result, business margins and mark-ups (on non-price controlled) items should, in theory, not be impacted by the new tax.

Reiterating that the private sector should not seek to recover one-off, upfront compliance costs “one-time straight”, Mr Rolle said: “This is also in the context of anecdotal reports of businesses making adjustments to prices in expectation of VAT-related costs.

“That price adjustment was not reasonable. We don’t expect there to be any adjustments of that nature.”

The VAT Comptroller did not identify any companies by name in his interview with Tribune Business, but his remarks will likely be interpreted as referring to the likes of Galleria Cinemas.

The cinema monopoly increased adult movie ticket prices from $8.50 to $10 on New Year’s Day, of which $0.64 was VAT and the remaining $0.86 a rise imposed by the company.

The total $1.50 increase was a 17.6 per cent increase, with movie tickets for children also increasing from $4.50 to $5 (an extra 11 per cent).

While the increases are hardly “outrageous”, as suggested by Price Control Commission chair, E. J. Bowe, the timing created the impression that Galleria was seeking to ‘camouflage’ the rise with VAT and then blame it all on the new tax.

Mr Rolle, meanwhile, suggested that VAT’s implementation appeared to have made Bahamian consumers much more protective of their rights, taking nothing for granted when making purchases.

The VAT Comptroller described Bahamian shoppers as the Government’s “watchdogs” and “eyes and ears” in both aiding its enforcement efforts, and ensuring businesses complied with the law and were held to account.

“We’re very, very happy with the feedback we’re getting from consumers,” Mr Rolle told Tribune Business.

“They are really the watchdogs in making sure the businesses have VAT registration numbers on their receipts, showing the TIN number and amount of VAT paid.

“Consumers continue to be the eyes and ears of the process.”

Mr Rolle told Tribune Business that VAT’s implementation would impose a new level of discipline on both consumers and the private sector alike.

While the former would likely curb excessive consumption and spending, the VAT Comptroller said the ability of Bahamians to ‘shop around’ - both at home and abroad - would help keep merchant prices in check.

“Most businesses have recognised that consumers have the option of comparison shopping at some level,” Mr Rolle said. “VAT will provide some discipline on the adjustments that will take place.

“It has been said in some cases that local businesses, when they compete, not only do they compete with each other but their counterparts internationally when Bahamians shop abroad, so all these elements are working in this period.”

In other words, the threat of competition - both locally and internationally - should help hold any company intending to ‘price gouge’ in check.

While admitting that the Customs duty reductions implemented on January 1 was “not a big list”, Mr Rolle said the reduced tariff rates would also feed into consumer prices in the coming months.