Vat - Potential Implications

February 1st 2016 will be a day that the average Trinbagonian would not forget. Why is this day so special from any other day? Value Added Tax (VAT) will be charged to hundreds of previously zero rated items that the typical Trinbagonian household used to enjoy. In essence, this means a higher grocery bill for everyone amongst other things. The real question that a typical citizen should be concerned with is: How is this going to affect my bill?

Statements made by the Honourable Finance Minister, Mr. Colm Imbert, suggested that this reduction in VAT, coupled with increasing the annual personal allowance from TTD$60,000 to TTD$72,000 should benefit the average consumer by adding approximately TTD$200.00/month to their pockets. Now let me stick a pin here- The problem with averages, in this case, is that they tell you absolutely nothing about the reality of a typical consumer and often gives you a distorted big picture.

Based on what has happened to the current VAT structure and other adjacent policies that affect the citizenry, this statement could very well be misguiding. VAT was previously 15% but on a smaller range of goods. At present, VAT has been reduced by 2.5%, but will be charged to an enlarged base of goods. Bear in mind also, that most of these goods were once zero rated, and more than likely made up a significant portion of consumers’ baskets.

From my economic point of view, I personally do not believe that the average Trinbagonian would see this extra TTD$200. How so? Firstly, every consumer is different-My grocery bill would be quite different from your bill. I do not eat meat and therefore my bill would consist of more fish, vegetables, and other non-meat based items. How this 12.5% is going to affect me is yet to be seen.

Secondly, most Trinbagonians and by extension Caribbean citizens, have a high import preference. This translates to more foreign goods on our supermarket shelves. Therefore, the pepper jack cheese, butterball ham, almond milk and other foreign goods that we love to consume will undoubtedly be charged the 12.5% alongside the formerly zero rated items.

Lastly, we need to ask ourselves what percentage of my basket is comprised of these formerly zero rated goods? This is the million dollar question that would speak to every customer differently. Take my case for example. I looked at my grocery bills for the last three months and realized that on average (Here is that word again…take it with a pinch of salt this time) out of 48 items bought only 3-5 of them were vatable. If we were to do the mathematics here, it means that approximately 89% of my bill was zero rated items. I am certain that this percentage of 89% will drop significantly come the end of this month when I go to the supermarket.

Come February 1st when the reduced rate of 12.5 % VAT is applied but to a larger base goods, most of which were once zero rated, I will have to re-examine my grocery bill to see whether or not I have realized any savings or gains on my bill. The issue that many persons will face is simply this: Is there a net gain or net loss with the imposition of this new VAT rate? The reduction of VAT to 12.5% is not that significant but the spread of goods that it will be added is what is truly important.

We all wait with bated breaths to see how this change will truly affect our pockets when we have to face the supermarket cash register at the middle or end of February. 

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