VAT exemption: some retailers fail to cut prices

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The exemption of Value Added Tax (VAT) on basic foodstuffs effected by government beginning of the year has not fully trickled down to the consumers. Some retailers have increased prices of commodities since January.

In a bid to increase affordability of basic food commodities for low income earners and encourage consumption of healthy meals, government removed the 12% VAT on items that include brown bread, vegetables, fruits, rice, samp, milk and bread flour, effective 25 January 2015.

A snap survey carried out by the BusinessWeek around Gaborone this week revealed that some retailers have knocked down prices, while others have held out with the old pricing. Other retailers have increased prices of the affected commodities.

In an interview with Business Week, the managing director for Main Mall Payless, Kgotla Odirile said they have removed VAT on all of the affected items.

The managing director of Spar Supermarket in Main Mall, Rathinam Rengasamy also said they removed VAT from the said items since 25th January, although prices displayed on the shelves portrayed a different picture.

When comparing the current prices of rice, bread flour and brown bread to the December ones, there is an indication that some prices have gone up instead. The trend was also discovered at the Shoprite supermarket, where some of the prices have increased except for milk, which has remained the same.

“We have immediately amended our system and programmed it to make sure that products are VAT exempted, even if the shelved product does not reveal that, VAT will be removed immediately when the product gets to the till.” said managing director of Sefalana Cash and Carry, Hans Kampmann.

Bokomo Sales and Distribution manager, Victor Khan told BusinessWeek that they have removed VAT from production on the listed goods effective 25th January. “I can assure you that we are now selling rice, flour and samp to our clients without VAT and they are the ones who should ensure that they do not add it on the listed products when selling to the consumers,” he said.

Announcing the 2015 Monetary policy statement Bank of Botswana governor, Linah Mohohlo said the VAT amendments provides potential for lower prices to a maximum of 12% on the basic foodstuffs which comprise approximately 5% of the Consumer Price Index (CPI) basket. “In principle, the price decrease are expected to reduce headline inflation by as much as 0.6 percentage points,” she said.

The governor, however, warned that   the administrative costs of implementing the VAT amendments could erode the magnitude and timing of the price cuts.

While, according to government, the amendments are aimed at making the prices of basic food stuffs and farming implements more affordable, tax analysts believe that when items are moved from a zero rating to an exempt rating category, it is not only against international best practice, but it tends to increase costs of the goods and commodities.

In an earlier interview with the BusinessWeek, a partner at Grant Thornton in charge of Outsourcing and Tax, Rajesh Narasimhan said exempting products from VAT would have implications of an increase in costs as the dealer of the product will not be in a position to claim his VAT on his expenses.“For example if milk is made an exempt supply, what will be the consequence for a dairy plant in Botswana. Since the supply or sale of milk is exempt from VAT, the company cannot claim the VAT on any of its purchases or any input VAT. That would mean that VAT on the purchase would be at the company’s cost. “The consequence of this cost would be passed on to the consumer and there would be a natural increase in the cost of the product,” he said. Narasimhan added that in case of a company dealing only with exempt category supply, they would increase by the 12% VAT rate.

Editor's Comment
What about employees in private sector?

How can this be achieved when there already is little care about the working conditions of those within the private sector employ?For a long time, private sector employees have been neglected by their employers, not because they cannot do better to care for them, but because they take advantage of government's laxity when it comes to protecting and advocating for public sector employees, giving the cue to employers within the private sector...

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