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Consumers, be on your guard


JEREMY STEPHEN

Consumers, be on your guard

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HOW IS THE two per cent National Social Responsibility Levy going to be applied? Like any levy, at the port.

The port is going to be responsible for collecting this thing but the problem is that value added tax is going to be charged on top of it.

So that two per cent being absorbed by the wholesaler or the importer means that the cost of importing the goods would have risen by two per cent.

But when you apply the profit margin first, then the 17.5 per cent VAT on top of it, you get this cumulative effect. It is as if you are paying VAT on the levy as well. I could see where people would really be angry.

There is a bit of math involved. The levy is supposed to bring in around $60.8 million and then the cumulative effect on that is supposed to result in a $62.1 million increase in VAT.

And then there is this thing which I am a bit foggy on but I think it has to do mainly with other taxes like cess taxes and sin taxes. This additional gain on taxes, which is to be charged on domestic output.

That’s going to be around $19.2 million. So I think they are saying that they are going to raise around $142.1 million during a fiscal year ongoing, presumably if the economy stays flat. That is, if imports stay at around $3 billion or so, but for this fiscal year being that it, the National Social Responsibility Levy, started September 1, they are expecting to collect around $82.9 million.

And the reasons for this collection are just very simple. The Ministry of Finance and the Central Bank are concerned about our levels of foreign exchange. The fluctuation is not following historical patterns. We normally see a fall between April and October, just before the tourism season. You get this big swing upwards during the tourism season, so up to April, then you get this slight decline and nice little uptick around Crop Over time because tourists come and they spend money and everybody spends money and you get this cyclical effect.

But then around 2013 everything went haywire . . . we really haven’t been protecting or really been growing our foreign reserves. So the quick fix measure is always that you try to make imports that difficult, you make capital controls, you keep them in place, so you can’t just send US dollars out and you don’t want too much US dollars going out to purchase imports. So that’s the simple economics behind it and why the National Social Responsibility Levy was really in place.

The major issue is how is this thing going to be applied and everything that has been imported beforehand, before September 1, will not attract that two per cent levy. So basically the way the math goes is if you imported $100 of some good at the port and it did not attract a levy, you decided to add a 50 per cent markup, that’s $150, and then when you apply VAT 17.5 per cent to that $150, you then would charge the end consumer $176.25.

So here is the catch. From September 1 any goods that land at the port, say the same $100 good, attracts a two per cent levy. So when the importer grabs that good, cost, insurance, freight and the levy would drive that price from $100, as it was before, to $102 with that levy. You would hope retailers charge the same markup because really the tax isn’t your fault. You can pass on the tax but you don’t want to be paying even more profit for a tax that wasn’t your fault. So that $102 with the levy if you put 50 per cent markup on that you end up with $153 as a price to sell on to the consumer before VAT.

But when you charge VAT, the amount that the consumer pays now goes up to $179.78, so essentially an increase of $3.53, assuming that retailers keep profit margins constant. My math tells me that the price to the consumer works out to be about 2.35 per cent. So it feels as though VAT went up by 2.35 per cent, and that’s the sad part. So the minimum should be 2.35 per cent and I keep trying to encourage people, for your own interests, just check to see.

The only reason these taxes do not work is because people are not confident and they are trying to skimp. So there is going to be a collections issue. Confidence is bad and the way Government has been reacting to it has seemed adversarial and I don’t think that engenders confidence and I really want to help. I don’t want to seem adversarial to Government because I think we are all one and the same. We can’t live without them, they can’t live without us, we would just descend into anarchy if that happens.

Remember, if your prices at the supermarket increase by more than 2.35 per cent your retailer is taking you for a ride and thinking you don’t understand math. Just keep people accountable, we need each other. To jack up profit margins at a time like this is going beyond the scope of what the minister was looking to achieve, or at least anybody with an economic brain.

Jeremy Stephen is an economist and financial analyst. His views were captured from a Facebook video in which he examined the new National Social Responsibility Levy which came into effect last Thursday, September 1.

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