As Chairman of the United National Congress I consider it regrettable and bewildering that food prices have substantially increased in the past month despite the Government’s reduction of the VAT rate from 15 percent to 12.5 percent as demonstrated by the Central Bank release on March 25th which also confirmed that food inflation increased by 4.5 percent compared to last February’s rate.
As a nation we are therefore forced to question why are food prices increasing so rapidly and suddenly?
This perpetuated increase is not as a result of any unethical pricing actions by suppliers but rather due to Government’s change to the tax regime. Like the proverbial Trojan horse the population was deceived into thinking the decrease in the VAT rate would have lowered their food bill, but to their detriment the current administration simultaneously increased the amount of goods subjected to vat which has resulted in the opposite taking place.
Consumers are now forced to pay VAT on over 7000 food items which were previously zero rated. Household necessities such as rice, salt, flour and even medicine are now vatable, which means that consumers pay higher prices than they did before. As a consequence any savings derived from the decrease in the vat rate on some products by 2.5 percent are canceled out by the increase in prices of previously zero rated products by 12.5 percent.
Food prices have also been spurred on by the increase in the rate of Foreign Exchange which Government has continuously failed to address. According to the Central Bank the exchange rate rose from 6.37 TTD to 1 USD in Sept 2015 to 6.6 TTD to 1USD in March, resulting in local suppliers having to pay more to acquire US currency to compensate foreign suppliers and therefore negatively impacting local prices. Sources have revealed that large Distributors due to the shortage of US currency may use other substitutes such as the Pound and Euro which sell at a higher rate, leading to an inflation of food prices yet again.
As the Mid-Year Budget review draws closer, given the current economic situation of dwindling revenue, it will be pertinent to monitor if Government reconciles its budget by decreasing expenditure or continue without adjustment at the economic and social expense of taxpayers.