By NEIL HARTNELL
Tribune Business Editor
nhartnell@tribunemedia.net
A prominent retailer yesterday warned it may take “two to three years” for Bahamian consumers to “balance out” the effects of Value-Added Tax (VAT), and ensure economic growth outstrips this levy.
Gavin Watchorn, AML Foods’ president and chief executive, told Tribune Business that it was simply “unrealistic” to expect Bahamian consumers to absorb 7.5 per cent VAT and maintain pre-2015 spending levels.
“There’s definitely adjustment going on,” Mr Watchorn told Tribune Business. “I think most businessmen will tell you the same thing; the VAT, while from a process and function viewpoint was very smooth, with the Government and private sector working very well to ensure the process itself was completed without too many issues, the reality is there’s been the introduction of a new tax that wasn’t there before.
“Is the economy growing at a greater level than the scale of the tax, and is consumer spending able to absorb that? Most people will tell you that it’s not, and it’s going to take a little bit of time to balance it.”
The AML Foods chief executive added: “2016 will only be the beginning of the balancing out, and it may last for 12-24 months after that.
“We may end up with a two-three year cycle before normalisation. It could be, and we all hope it’s not.
“But, realistically, we kind of expect our consumers, who are not very much used to a tax environment, to absorb the tax and maintain spending habits. That was never realistic and never expected.”
From AML’s perspective, Mr Watchorn said that if the BISX-listed food retail and franchise group maintained the focus it had shown in the last eight months, it would be “propelled forward” into 2016.
“If we start to see consumer spending begin to align itself back with VAT, hopefully will be in a position to take advantage of it,” he told Tribune Business.
Meanwhile, although Mr Watchorn declined to comment, Tribune Business understands that the second location for its Carl’s Jnr franchise will be on Carmichael Road once all planning approvals are received.
The AML Foods chief executive, though, said there had been “strong interest” from prospective tenants in its joint venture shopping centre project earmarked for Yamacraw in eastern New Providence.
The BISX-listed company is a 45 per cent shareholder and partner in the development with Sunshine Holdings affiliate, Luxury Homes (Bahamas).
Dionisio D’Aguilar, AML Foods chairman, said in a note to shareholders: “Solomon’s Food Store, an AML Foods brand, will serve as the anchor tenant.
“This expansion allows our company to continue its strategy of opening neighbourhood stores to complement our destination stores. We are looking forward to the opening of this shopping centre and our new store in late 2017.
“We expect growth in both sales and purchasing power, as we meet the needs of the underserved communities of eastern New Providence.”
Comments
Chucky 9 years, 1 month ago
It's ridiculous to think that VAT can be absorbed by customers. The pie is only so big and government just took 7.5% off the top- that money has to come from somewhere, and there is only one pie.
For GDP growth to offset the VAT, the GDP growth must first surpass the rate of inflation. We all know that inflation on most consumer goods is in the 7%-10% range these last few years. GDP growth is somewhere in the 1-2% range at best, and therefore the economy is actually shrinking.
As an example of this effect: 2014 AML Foods sells 100,000 loaves of bread at $3.00 each, total sales of bread = $300,000.00
2015 AML sells $306,000.00 worth of bread, 2% increase of gross bread sales (similar to GDP growth rate). But the inflation (using 7%) has the bread price at $3.21 per loaf. So reality is that the $306,000.00 in sales in this example, divided by the price of new price of bread due to inflation, $3.21 per loaf, = 95,327 loaves of bread. Thus we have a reduction in units sold (year over year ) and a shrinking economy, as less loaves of bread are bought.
When the growth of the pie (i.e. GDP) is less than the inflation rate, you have no control over the shrinking sales volume in all industry. While fuel and other commodities are fluctuating, most consumer goods are going up in price at an alarming rate.
Inflation is really currency devaluation, mainly due to the "printing of money" by governments. Obviously market sentiment has an effect on currency values, as investors flock to the USD it tends to shore up its value to some degree, despite all their money printing stimulus packages.
But no thinking individual can deny the real inflation rates far exceed what government propaganda suggests. All governments are in a race to the bottom with their insatiable appetites for debt and resulting increased need of taxes to fund the debt.
One can clearly see that we need to work on real GDP growth, to the point it exceeds actual inflation rates before we can begin to absorb the effects of VAT. Short of this, anyone who thinks VATs appearance in our economy will be absorbed is a wishful thinker.
Our economic pie is only so big, and there is only one, enjoy the view as business and government jockey and fight for their pieces of the pie..........
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