By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Super Value’s president yesterday said the proposed VAT ‘split tax treatment’ for food retailers would cost the supermarket chain $3-$4 million per annum, and potentially “wipe out most of the industry”.

Rupert Roberts, speaking after the Retail Grocers Association met with the Ministry of Finance on the issue yesterday, warned “it wouldn’t be worthwhile” to continue operating a number of his chain’s inner-city stores if the Government persisted with the VAT Bill as it currently stands.

The draft legislation allows food retailers to recover ‘input’ VAT in proportion to the ‘taxable’ items they sell, meaning they are unable to recover tax paid on products/items that will be treated as ‘exempt’.

Given that inner-city stores’ inventory tends to have a greater weighting towards such ‘exempt’ items, due to the customer base they serve, the concern is that such businesses will recover an even smaller proportion of their VAT ‘input’ costs.

Mr Roberts said the Government’s team had acknowledged the issues this created for the food retail industry, and promised to “consider” its request for a fairer method of VAT ‘input’ cost recovery.

The Super Value owner, though, reiterated that food price rises were inevitable if the Government maintained the VAT status quo, suggesting they could even match the 17 per cent increases experienced in St Kitts.

“They say they see our problem and are going to consider our request,” Mr Roberts told Tribune Business of the meeting’s outcome. “It just happens that we’re an industry that’s got caught in the exempt or taxable items.

“We told them that it would, in my case, cost $3-$4 million, and with the Business Licence fee increase costing another $1 million, we’ll just have to raise prices on non-exempt goods to cover that.

“The cost of living would certainly go up. Here we mentioned St Kitts, the same 17 per cent that St Kitts has gone up by.”

The issues created by VAT ‘input apportionment’ were first identified by the KPMG accounting firm, which in an analysis of the draft Bill and regulations warned that food stores - which sell both ‘exempt’ and taxable products - would only be able to recover input VAT in proportion to the latter aspect of their business.

As an example, KPMG said that if a food store’s total inventory was split into 40 per cent VAT ‘exempt’, and 60 per cent ‘taxable’, the business will be unable to recover 40 per cent of the VAT paid on overheads such as rent, electricity, transportation, imported services and administration costs.

Mr Roberts said the proportion of Super Value’s inventory that would be treated as VAT ‘exempt’ was “over 50 per cent”, and this was likely to increase once the new tax kicked in, and consumers gravitated to these items because they were cheaper.

“With the smaller stores, [VAT exempt inventory] could go up to 85-90 per cent, so the small ‘Mom and Pop’ stores will get nothing back and have got no other mechanisms to raise their prices,” he added.

“It could put some stores out of business. It wouldn’t be worthwhile to operate. Five of our stores are inner-city stores. They may run 75 per cent [VAT exempt items]. It wouldn’t be worthwhile to operate.”

Mr Roberts said it was impossible to quantify how much food prices might increase by if the VAT input ‘apportionment’ policy remains unchanged, although the Government has conceded the new tax will cause a one-time 5-6 per cent increase in inflation.

Asked how confident he was that the Government would reverse course, Mr Roberts told Tribune Business: “They’ll have to do a balancing act. It puts them between a rock and a hard place.

“If they don’t back off they’ll have to accept a major price increase and we can’t exist. It would wipe out most of the industry.

“They [the Government] don’t want price increases; they don’t want shorter employee hours; they don’t want lay-offs or to destroy businesses. They can’t transfer government’s previous serious extravagances to us.”

The Super Value chief reiterated that VAT was “definitely not the way to go”, and said: “The public don’t want any part of it.”

He hinted that the Government should first make a greater effort to collect existing taxes, particularly real property tax, and questioned why he had never received a discount for remaining compliant but defaulters had.

“It’s a troublesome method. That’s the main objection,” Mr Roberts said of VAT, suggesting that the Government should consider the alternatives submitted by the private sector.

“We know the Government has to have its taxes, but the main objection is the troublesome, labour intensive and expensive way they’re going about getting it.

“VAT has failed in very country so far, and you only have to look at the big shipwreck in Barbados. The politicians were there and the IMF were there, and they caused it. They’re planning the biggest train wreck on earth for the Bahamas.”