Electricity Tax Hike to Push up Jamaica’s Chicken Price

JAMAICA - Although chicken remains exempted from General Consumption Tax (GCT) under the Government's new tax measures, the price of the popular protein will be increased because of the hike in the tax on electricity announced by Finance Minister, Dr Peter Phillips, last week.
calendar icon 29 May 2012
clock icon 6 minute read

At the same time, local manufacturer and distributor GraceKennedy says the imposition of GCT on corned beef will push the popular tinned meat out of the reach of the average consumer.

Jamaica Broilers Chief Executive Officer Chris Levy confirmed that higher electricity costs, which his company will not be able to recover, will result in a hike in the cost of chicken meat.

"Without a doubt it is going to affect us, because with the tax on electricity going up, this is going to flow through to our consumers in the price of chicken," Mr Levy told the Jamaica Observer.

According to Mr Levy, the company is now in the process of working out what the impact will be on the current price.

"We got the ministry paper Saturday and we are trying to work this thing through because the impact is not only for us but also for our suppliers and contract farmers," he explained.

Last Thursday in his Budget presentation, Dr Phillips had announced that GCT on electricity usage of 300 kWh and above will be increased from 10 per cent to 16.5 per cent effective 1 June.

Companies are able to reclaim GCT paid on electricity from the tax collected on the goods and services they provide. However, companies which supply tax-exempt goods are not able to recover this GCT.

Mr Levy said it was still too early to finalise the impact of the increased costs to Jamaica Broilers' as the model being used for its contract farmers also has to be worked out.

"Whatever happens is going to happen between now and Monday when these changes become effective," he said.

Chief executive officer of GraceKennedy Don Wehby said an internal analysis has since shown that the addition of GCT on corned beef will affect consumer demand of a food which is relied upon a lot by low-income householders.

"At GraceKennedy we have done quite a bit of analysis on the removal of GCT on basic food items and we have some major concerns which we will be writing to the minister about," Mr Wehby said.

GraceKennedy, he said, will be calling for the removal of GCT on corned beef, which is an imported item.

"We believe they should remove it from corned beef because we have gone out there and done the sensitivity studies and have done our best to look at how to cost it out and it is just not good," he said.

While corned beef is expected to be most affected, Mr Wehby said it is just one of several basic food items which will be impacted by the tax measures.

"We are looking at all the various ways in terms of how the group of companies can become more cost-efficient to try and minimise the impact to our consumers and customers," he said.

Mr Wehby also said the increase in GCT on electricity will have both a "cost implication" as well as a "profitability consideration" for the GraceKennedy Group of companies, which also offers banking and securities services.

He explained that since the services of the bank and securities companies in the group are exempted from GCT, these companies will not be able to recover the 6.5 per cent increase on electricity charges, hence making this a direct expense to them.

"We have some of our manufacturing plants which manufacture goods that are also exempt from GCT and so we will not be able to recover some of the incremental costs, including that of electricity," Wehby said.

He added further that the group is trying its best to keep the cost to the consumer at a minimum, as the market is very competitive.

"We are now spending a lot of time looking to see how we can become more efficient as a group because you can't assume that you can just pass on the increase to the consumer, because it is very competitive," he said.

"We are now spending a lot of time looking to see how we can become more efficient as a group because you can't assume that you can just pass on the increase to the consumer, because it is very competitive," he said.

President of the Jamaica Manufacturers' Association (JMA) Brian Pengelley said the increased GCT on electricity will further impact the cash flow of a lot of companies.

He explained that with GCT being a credit/debit situation most people will be able to reclaim the tax in a 30-day period. However, this will impact on the management of a company's cash flow.

He explained further that what can be passed on to the consumer is driven by what is the available tax the consumer has to pay.

"So companies will have to look for more efficiencies, maybe to mitigate that, because you can only pass to the consumer what they are willing to pay," the JMA head said.

The management of Carib Cement agreed that the increased GCT on electricity will impact the company's cash flow, but said it should not directly affect the cost of cement.

"At this time I would not make the comment that it will be rolled into the product but the financing cost of operation is one that ultimately factors into the pricing of our product, so to the extent that the financing is impacted it would be in that manner," said Orville Hill, Carib Cement's finance manager.

While the impact of the increased GCT by itself will not necessarily trigger a change in cement prices, Mr Hill said the company will be looking at a number of other issues and incorporate those factors in adjusting price correction as needed.

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