The removal of value added tax (VAT) on food items may not bring about an equal reduction in food prices, is a disincentive to local farmers and agro-processors, and could increase T&T food import bill, a University of the West Indies (UWI) economist has said.
Indera Sagewan-Alli, executive director, UWI Caribbean Centre for Competitiveness, said in an October 9 interview with the Business Guardian at the Hyatt Regency Trinidad hotel, "There is no guarantee that the 15 per cent shortfall in tax that the Government is prepared to forego will result in an equal reduction in prices. We have seen in the past where that did not, in fact, happen, where the Government did remove VAT on certain items, and there was not an equal reduction in prices because businesses can argue there are other factors that contribute to the price on the shelf, such as security costs, transportation costs, any number of other (costs), so that we could end up in a situation where even if we do have price reduction, it is possibly less," than what is hoped.
A former United National Congress (UNC) Member of Parliament, Sagewan-Alli said, "The Government is foregoing very critical revenue from VAT on food items in the context of a larger budget, $58 billion, without a guarantee that it will result in the benefit that they intend to give."
She said she thinks "there is good intention behind the proposal" but that good intention may not necessarily result in lower food prices, and "Secondly," she said, "it could cause negative consequences on very, very sensitive parts of the economy."
She was speaking to Business Guardian after her presentation at the Institute of Chartered Accountants of T&T's (ICATT) annual international finance and accounting conference at the Hyatt on October 9 and 10.
"Already, our local farmers are challenged by the competition they face from imported vegetables and fruits," she said, adding, "there is little incentive to want to grow."
The removal of VAT on more food items will help food importers, but add to the strains on local farmers she said.
"It has the potential, if not properly managed, to impact negatively on the domestic food production which, I made the point, declined if you look at the review of the economy," she said.
"It also could have negative consequences on agro-processing," she said, and "could encourage, in a greater way, the importation of more food and processed items."
Sagewan-Alli said, "It has the potential to increase our food import bill because the value of our food import bill does not include VAT. VAT is a local tax. The value of our food import bill is measured on the port."
Food importers, she said, will no longer have "to worry about the six months that is required to recoup the VAT, so it has now made the ease of business for importers better in place."
She said, "What we could see is the further proliferation of (imported) food items to the detriment local farmers, as well as possibly (to) local manufacturers, and I quote an agro-processor who says he is still subject to paying VAT on his input, and therefore, in waiting for the Government to refund that, his cash position is constrained, and (this) therefore will hinder his capacity to effectively compete with final import goods and services a la this removal."
Fine cocoa
Asked about local cocoa production, Sagewan-Alli said, "We have been hearing for about 20 years" that T&T's cocoa is the best in the world, yet nothing is being done to leapfrog this industry.
She said, "The solution is, one, we need to change our laws."
She said there are niche-market chocolatiers that are facing severe challenges under the outdated existing laws. She said one such challenge is the absurd requirement by law that a chocolatier has to make chocolate from the chocolatier's own production, and is prohibited from buying from local cocoa producers to meet production targets.
"Second, we need to invest heavily in research and development to ensure that we (are) genotyping, so that we can certify the evolution of the bean, which will allow us to earn at the highest end of the international cocoa market."
"We need to incentivise the revitalisation of the cocoa industry," she said.
If brought back to its peak production level of 35,000 tonnes per year up from where its present 600 tonnes per year, the difference will be noted immediately and bring "benefits in terms of revenue," she said.
Sagewan-Alli said this also holds great "potential for the generation of employment, moving workers away from CEPEP and the Unemployment Relief Programme (URP) into productive, value-adding activity, and we haven't even spoken about value added and going down the chain and having a chocolate factory."
She said "some major people in this country" made large investments in cocoa, including former CL Financial boss Lawrence Duprey, but she thinks "it's the regulatory framework that makes it unattractive for them to really move forward with this."
She said, "Outside of that, we have initiatives happening as we speak. There is, in Gran Couva, a cooperative that is doing excellent. They have gotten their own license and they are exporting cocoa beans directly, so a cooperative model for cocoa production is one that we could" emulate.
Best cotton
Asked about West Indian Sea Island cotton, the commercial production of which started in T&T, and is reputed as the best in the world, superior to Egyptian cotton, the world's second best, she said her understanding is while the raw material can be produced here, the technology to process it from cotton to fabric is protected by intellectual property laws in Europe, "so it basically has to go there, and be brought back for our production of clothing.
"Again, if we have this, and it has such potential, especially in this green world that we're talking about, we need to invest in R&D to produce an alternative technology that would allow us to be able to process this into (fabric), and we need to incentivise that in some way for it to happen."
It is not very profitable to export the raw cotton, she said. "It's pennies the farmers get" for their exports. The money is in the finished products. She said as far as she is aware, there are only a few such cotton farmers in some of the other small island states.
Sagewan-Alli dismissed the notion that Caribbean people are not interested in agriculture because of the historical stigma from colonial times. "Explain to me why is there such a large intake of agriculture students at UWI every year," she said.
"My view is that we need to redefine agriculture, and that is what I mean about having a vision, a minister of agriculture needs to articulate a different vision for agriculture. What is this agriculture sector going to look like five to ten years down the road?" she said.
