The Guyana Revenue Authority (GRA) says it will be keeping a sharp eye out to ensure that the VAT on newly zero-rated items is removed and it flayed a decision by the flour company to immediately increase it price by the same 16%.
Following the VAT zero-rating of flour in the budget, the National Milling Company of Guyana (Namilco) increased its price by 16 per cent to neutralize the impact on its sales by what it referred to as dumped flour from Trinidad.
But Commissioner General of the GRA Khurshid Sattaur yesterday expressed outrage at what he called Namilco’s abuse and said that this is the kind of business practice that makes the Government and the GRA think twice before instituting other relief measures, including possibly a VAT rate reduction.
A press release from the GRA yesterday expressed the agency’s strong disapproval of the announcement by Namilco of its price increase, explaining that products using flour in its manufacturing process are likely to increase in price.
Namilco said in an advertisement in the press on Sunday that while it has always been its intention to keep price increases to a minimum, “we can no longer afford to do so and are now forced to increase prices with effect from March 3, 2008.”
The company said that in order to keep these prices stable for at least two months, “we have taken the opportunity with the zero rating of flour to increase our prices by a similar percentage (16%). Flour prices should therefore remain stable and should not increase.”
The company urged that the people of Guyana shouldn’t look for short-term gain that will bring long-term pain. “We urge you to buy local in order to save jobs, enable farmers and stock-feed producers to get their supplies of wheat bran (in order to keep the prices of chicken, beef and pork stable) and to save the local flour industry from closing its doors,” Namilco said.
The company pointed out that wheat prices will continue to rise in the coming years as more land is used for grains to produce bio-diesel and ethanol. Namilco said that a recent survey of flour prices in the region showed that the company had the lowest prices “although the Governments of Barbados and Jamaica have announced a subsidy on flour.”
“With rising wheat prices we had lobbied for the VAT rate on flour to be either lowered or eliminated in order to keep the price of flour at an affordable cost to the consumer,” the Namilco ad said.
The company explained that it blends two types of wheat to make Thunderbolt Flour. “We have seen steep price increases in these two types of wheat from $382 and $377 (FOB or the price minus freight) respectively in October 2007 to $898 and $450 at present,” the company said. It added that one ton of wheat when milled makes approximately 17 bags of flour “so a simple calculation will show that the wheat cost (excluding freight) is in excess of the price we charge for a bag of flour. Other costs include labour, freight, packaging and electricity.”
“Namilco was forced to keep [its] prices at the October 1, 2007 level because of the influx of dumped flour from two Trinidad flour mills. This unfair practice is severely hurting the local flour industry and cheats the minority shareholders and consumers in Trinidad. It is interesting to note that the flour mill, in which the Trinidad Government has a majority interest, is selling a 45 kg bag of bakers’ flour at US $7 lower than what it sells for ex-factory in Trinidad,” Namilco said.
Sattaur yesterday said: “In zero-rating flour, the concerns of Namilco were a main consideration. The government was concerned about rising prices of food items including that of flour and therefore further zero-rated these products. On the other hand, Namilco, which calls itself a caring company, is choosing to pocket the relief which is being offered and intended to give relief from the effect of high prices paid by consumers.”
Sattaur said that VAT registrants are already benefiting from relief for all of their input taxes as readily as they make sales. “We do not see these benefits being passed on to consumers, the GRA therefore views such a move as a selfish and unconscionable act that deserves to be condemned and thwarted by all righteous Guyanese.”
Businesses that use flour as their main ingredient in the manufacturing process will continue to recover the VAT on any other standard rated inputs into their operation. But Sattaur said that since flour is now zero-rated, there will be no VAT to recover on flour, therefore if indeed the company increases its flour prices in line with the 16% VAT rate, then bread and all flour-products will increase since there will be no VAT to be recovered.
Sattaur said that this is exactly the kind of practice by businesses that make the government and the GRA apprehensive of instituting further reform measures such as zero-rating additional items or even reducing the rate of the tax since there is no guarantee that the consumers will benefit.
The GRA maintains its position that the introduction of VAT should have resulted in reduced prices since it replaces six taxes which had higher rates than the 16% now applied and it is a shame that businesses would use the VAT system to exploit consumers.
“If only businesses are prepared to pass on the benefits to consumers we would have a more vibrant economy that would be prosperous for businesses and consumers alike,” he said.
The Commissioner-General urged consumer bodies to get on board and intervene to ensure that consumers exercise and enjoy their rights in a free market system.
The GRA release said that over the next few weeks it will be monitoring the prices of additional zero-rated items together with the Consumer Affairs Division of the Ministry of Tourism, Industry and Commerce.
Sattaur said that as soon as a reasonable assessment of the implementation of the additional zero-rated items is done nationally, the GRA will be forced to publish the names of devious businesses if the amendment is not yielding the intended benefit.
