The impact of the introduction of value-added tax (VAT) on consumer spending habits was yesterday described as a remaining "big unknown" by a major grocery retailer and restaurant operator. Suggesting that VAT will lead to a fall-off in consumer demand, AML Foods President and Chief Executive Officer Gavin Watchorn said that businesses should prepare for the effects of the tax by asking themselves: "If I lost 10 percent of my sales, what do I need to do?"
Watchorn said that while earlier concerns over a "devastating" effect of VAT on food retailers under the previously proposed VAT regime - in which many food items were exempt from the tax - have been alleviated, the question of exactly how consumers will adjust their spending habits when the 7.5 percent consumption tax is imposed, come January 1, 2015, remains a serious challenge for businesses to quantify and navigate.
"The big picture concern is how the country reacts to VAT. I don't think people are in any doubt that there needs to be some level of tax increases. The concern from AML's perspective and anyone else is what is the impact on consumer and business to business spending. I feel pretty confident that a large part of our economy is driven by consumer demand. The big unknown is what happens to people's spending habits come January 1. Realistically I think people have to expect a shift in those habits and you have to be ready to react to a negative impact."
Highlighting the role of consumer confidence in determining spending levels in the economy, Watchorn said that just the announcement in 2013 that VAT would be implemented led to a noticeable decline in demand for goods offered by AML, which owns Solomon's Fresh Market, Solomon's Super Center and Cost Right, along with the franchises for Carl's Jr. and Dominos in The Bahamas.
"We saw an immediate shift in spending habits. The reality is that we are under no illusion that there'll not be an impact on consumer demand," said the executive.
Asked how businesses can prepare, Watchorn said: "You have to run your business as efficiently as you can, and businesses have to look at themselves and see if I lost 10 percent of my sales what do I need to do? If they drop by 7.5 percent, how do I ensure I get the same level of returns. Each business needs to look at how they prepare for that." Meanwhile, the businessman said that AML Foods is also concerned about how it transitions into VAT, as all pricing in the store will need to change to be VAT inclusive come January 1.
"The concern for our company really is that transition period where your prices on December 31 are VAT exclusive and on January 1 are VAT inclusive, and the actual process we have to go through of amending our prices for VAT. That's what we are focused on - how best to achieve that while minimizing the impact to the consumers and at the same time protect our margin. We don't want to be paying tax on items where the price is not adjusted for VAT," said Watchorn.
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