The Allen Chastanet administration has honoured its election campaign promise to reduce the Value Added Tax (VAT) from 15 percent to 12.5 percent – with plans to gradually eliminate the tax.
Critics have however argued that a slash in the VAT rate means a reduction in government revenues.
Opposition Leader Philip J. Pierre predicts that government’s fiscal position will deteriorate this year as a result of the reduction in taxes, among other factors, despite news last week from the Ministry of Finance that the country experienced a three percent upswing in the economy and a steady dip in the unemployment rate.
However, Prime Minister Allen Chastanet, speaking to reporters recently, explained that a reduction in the VAT rate does not necessarily mean government will lose out.
He said: “I was very clear at the beginning. I was criticised heavily when I said in reducing VAT I realised that I cannot tell the businessman whether he should put the money and give it back to the customer, or whether he is going to do it to improve his bottomline. But this argument that the government is going to lose out, we don’t.
“If they don’t put it to the customer, and they put it towards their profit margin, then government collects the taxes in the form of corporate taxes. Now, if you are in a competitive industry, you are more than likely going to pass on these savings to the customer. But even without that, the same people that Philip Pierre was talking about, the people who are not that registered, have made a significant savings. And those are the same individuals, these that tend to be small mom and pop shops. These are individual people who own their small businesses. They have made an immediate savings,” Chastanet said.
The prime minister rubbished claims that price-gouging is now commonplace across the country.
“The inflation rate was 0.1 or a tenth of a percent. So, we’re not seeing that… but that’s how the inflation rate is measured. The inflation rate is a basket of goods which include some basic food items. So we’re, unfortunately, the statistics are not supporting that argument that food prices have gone up. And at the end of the day, there are items that are under our price control. So those items have not gone up and cannot go up,” he said.
At a press conference last week, Pierre said a reduction in VAT was compensated by an increase in the excise tax on fuel.
He said: “The government reduced VAT by two and a half percent, but we seem to forget that the Labour Party had already exempted people, businesses that earn less than $400,000 from VAT. The government had already done that. That policy was already in place.
“Secondly, the government increased by over 50 percent the excise tax on fuel, so a reduction on VAT of two and a half percent was compensated by an increase in the excise tax. If the economy was performing as the minister is proclaiming, would that increase in revenue…? And by the way, I have not seen, we have no idea what is in the black box. The black box as for fuel, we are not sure what’s there. We have not been told.”