Price increases in Guyana due to global changes not VAT, says minister

Price increases in Guyana due to global changes not VAT, says minister
Published on Saturday, August 18, 2007
http://www.caribbeannetnews.com/news-3074--13-13--.html

GEORGETOWN, Guyana (GINA): The increase in prices for some commodities in Guyana is being blamed on the Value Added Tax (VAT) but reports show that this is a phenomenon affecting other countries as well, including CARICOM nations.

Minister of Finance Dr Ashni Singh said that the price increases locally are due to changes on the world market for these commodities.

It is a global phenomenon and governments are working to find ways of ensuring that consumers do not feel the full brunt of the problem. Some of the essential food items affected are potatoes, milk and flour.

This situation is not unique to Guyana, since other countries are facing price increases for various essential food items including flour and milk.

Singh pointed out that an analysis of the movement on the Consumer Price Index (CPI) for January - June this year shows that the price for particular categories of commodities have increased due to external factors, since many of the items are zero-rated.

“Much of the movement that we are observing in food prices and by extension much of the movement that we are observing in the CPI cannot, and I say this in very emphatic terms, cannot be attributed to the introduction of Value Added Tax,” Singh said.

“If you were in fact to examine food items you would see that Government by very deliberate action, both before VAT was introduced and in the earliest months of VAT’s implementation, made a very clear and concerted effort to zero-rate a number of basic consumer items including an extensive list of food items.”

In addition, a number of imported food items that previously attracted 30 percent consumption tax are now subject to 16 percent VAT which is a lower rate.

Several reasons are causing this increase, including irregularities in weather patterns and extreme weather conditions.

Extreme weather patterns in New Zealand and Australia have caused a steep rise in the price for milk. Although milk is a zero-rated item locally, the price has risen as a result of a shortage due to a prolonged period of drought in those countries.

The developments in Australia and New Zealand particularly in relation to milk prices on the world market have shown a 60 percent increase from February to present.

“This is a very significant development on the world market and it is inevitable for a country like Guyana that imports a number of its milk products that it’s going to feed through to us,” Singh pointed out.

The price for wheat on the world market has increased by 14.3 percent over the past 12 months. This increase is however, not confined to this commodity, since the cost of other commodities have been influenced.

Singh noted, “We have seen wheat inventories in the global market being at their lowest level in approximately 30 years. I saw a report recently saying that corn inventories on the world market are at their lowest since modern records started to be maintained.”

The price for palm oil, a base for a lot of vegetable oils consumed worldwide, has increased by 93.8 percent in a one-year period. The index for non-fuel commodities has recorded an increase of 20.1 percent over the last 12 months. This has resulted in an increase in prices for imported products.

“Related to this increased consumption of food products for bio-fuel production has resulted in a very significant depletion in the stock of certain food commodities. The shift to bio-fuels has resulted in the diversion of the production of certain grains, which were historically destined for the food market, to the production of ethanol.”

Additionally, the minister said, there has been and continues to be the challenge of high oil prices which has quadrupled in recent years.

“The reality is that literally everything that is produced, everything that is transported, is influenced by the price of oil. It is inevitable that the steady increase in oil prices will transmit itself into the market price of commodities and the cost of getting these commodities to Guyana,” said Singh.