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Fighting the food inflation: From net-zero VAT to supermarkets seeking price cuts

Fighting the food inflation: From net-zero VAT to supermarkets seeking price cuts

Business

Reducing prices is currently the biggest challenge for governments around the globe

LAHORE (Web Desk) – How to reduce food prices have become a challenge for governments around the world as they are taking a variety of steps to assist their citizens falling victim of continuously reducing purchasing power.

In a latest warning, the Asian Development Bank (ADB) has said soaring prices in Pakistan will push South Asia’s inflation higher and projected 1.9 per cent growth rate for Pakistan in FY2024 (2023-24).

Read more: Food prices owing to weaker rupee, supply shortages will push Pakistan inflation: ADB

The ADB noted that average inflation in Pakistan will soar to 29.2 per cent caused by supply shortages, continued currency depreciation, import restrictions, and fiscal stimulus for post-pandemic recovery.

Perhaps, the easiest formula is to reduce or even withdraw taxes. However, the counter argument is that it results in fiscal deficit due to reduced revenue collection – a move that would cause long-term economic problems.

PORTUGAL

However, Portugal went for suspending value-added tax (VAT) – we in Pakistan know a similar taxation measure as general sales tax (GST) – in April for selected items.

For this purpose, the Portuguese parliament approved a proposal for zero VAT – to 0 per cent from 6pc – on essential food products – including milk, bread, rice, tomatoes, and some meat and fish – from April 18 and October 31 this year.

However, the government earlier this month decided to extend the exemption period by another two months to help families deal with persistent inflation.

Talking about the decision, Prime Minister Antonio Costa had said the measure contributed to reducing prices. “We want to keep controlling the price of essential food products to help Portuguese families."

Inflation in Portugal had been falling steadily. After peaking at 10.1pc in October 2022 – the highest in more than three decades – it dropped to 3.7pc in August.

Costa also said the government plans to pass new measures later this month to support families hit by higher interest rates.

FRANCE

In a latest report, Reuters reported that supermarket groups in France could demand price cuts of 2 per cent to 5pc from food manufacturers in upcoming annual negotiations, the head of retailer Les Mousquetaires told lawmakers on Wednesday in a roundtable with executives.

French retailers have criticised consumer goods giants like Unilever and Nestle for price hikes they say are unjustified. The government has also put pressure on the consumer goods makers to cut prices.

Lower raw material and energy costs mean producing food and other consumer goods is less expensive, Les Mousquetaires President Thierry Cotillard said, and prices agreed in negotiations should reflect that.

France, which has regulations dictating an annual window for price negotiations – from December 1 to March 1 – is considering a law that would bring forward the negotiations, aiming for talks to begin soon and wrap up by Jan 15.

Earlier on Monday, Prime Minister Elisabeth Borne told newspaper Le Parisien that the French government plans to temporarily lift a ban on retailers selling road fuel below cost as part of efforts to stem inflationary pressures on households.
Sales-below-cost laws are mainly aimed at protecting small independent firms from predation by the larger entities which can reduce profit margins or even absorb losses for a limited period as a marketing [business] strategy.

However, Borne rejected the idea of the government reducing fuel taxes, citing the need to reduce the public deficit and debt while saying that large companies should play their part.
 




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