On Friday, November 29, 2013 the Government released the draft Value Added Tax Bill, the Draft Value Added Tax Regulations and A Summary and Explanation of the Draft Legislation, and so far, page 11 of the explanation of the Bill is most interesting.
The sample, shown in the photo on the left suggests there will be an 18.9% reduction in the Excise Tax and because no mark up is allowed on the VAT portion of the taxes paid at the port, this attempts to force a 13% reduction in the businesses mark up.
Meanwhile, the government is projecting an increase in taxes taken of 21.05%.
Businesses that fall under the Price Control Act will have no choice but to accept the reduction, unless these controls are removed, but that aside, adjustments will have to be made if profitability levels are to be maintained.
Other considerations that might come into play are;
a. Increased mark ups.
b. Measuring Price Elasticity of Demand to determine if and/or by how much more prices can be raised.
c. Staff compliments, salaries and benefits might have to come under more detailed scrutiny.
d. Discounts on large ticket items where one is normally expected or granted might have to be reduced or rescinded - which in effect raises prices.
There are obviously more possibilities that each business will have to determine based on how these proposals impact them directly.
It is unfortunate that successive governments have expanded its scope and size and borrowed and spent until this day of reckoning is upon us.
With many businesses today, both large and small, just treading water, making them less competitive in this manner may slow economic growth even more.
Either the bureaucrats behind VAT are not aware of this, or simply don't care what the outcome might be.
In the final, every entity must remain profitable to continue to hire staff and pay all the associated costs of doing business. Oh some of them might be able to coast on cash flow for a while, but without profits you fail and that's not good for high, middle or lower classes, i.e. owners, employees nor government.