TCIG $15M initiatives will not adjust the cost of living and inflation

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Drexwell Seymour is from the Turks and Caicos Islands. He graduated with a Bachelor of Arts degree in Accounting at age 19 and a MBA in Finance at age 20. In 1992 at age 22, he took and passed all four parts of the CPA exam. He is currently part of a credit union exploratory committee and hopes to have credit unions established soon in the TCI. He is an author, his articles are also posted on his website www.drexwellseymour.com

By Drexwell Seymour

– Consumers will not feel any significant changes

The Turks and Caicos Islands Government (TCIG), recently announced that it will forgo $15 million in its revenues to address the cost of living and inflation. Of the $15 million, $2.8 million is due to the reduction in fuel taxes from 85 cents to 64 cents. The remaining $12.2 million is due to the reduction in Customs Processing Fee from 7.5 to 5 percent.

While I believe the government had good intentions and meant well with these two initiatives, I am not convinced that the government analyzed the impact of these two initiatives because based on my analysis, these initiatives will not adjust the cost of living and inflation, and therefore, the consumers will continue to face a high cost of living.

The impact on the fuel prices

First of all, fuel suppliers have to not only pay a fuel tax of 64 cents but also a fuel import duty of 44 cents on the gallons of fuel imported. In addition, they have to pay freight, local shipping transportation cost and of course, they have to add profit margin.

Let us take a look at this example of a fuel supplier who imports fuel. A fuel supplier imports 6,000 gallons of fuel at a first cost of $3.55, this means the total first cost will be $21,300 (600x$3.55). The supplier then pays approximately $3,000 in freight to get the fuel from his vendor to the Turks and Caicos.

The supplier pays Turks and Caicos Islands Government $0.44 cents on 6,000 gallons which equates to $2,640. The supplier then pays CPF of 7.5 percent which is $1,597.5. The supplier also pays a further 85 cents taxes on the 6,000 gallons which is $5,100. The total landed cost now to the supplier is $33,637.50 which means the cost per gallon to the supplier is $5.61. This is calculated by diving 33,637.5 by 6,000. Many suppliers add $1 to the landed cost as the selling price to the consumer so you as the consumer will pay $6.61 per gallon.

Now with the proposed government initiatives and assuming no price increase in the fuel, the supplier landed cost is $5.31 and therefore, you will pay $6.31 per gallon which is a reduction of 30 cents per gallon. I don’t know what the average person spends on fuel but let us say you spend $20.00 on fuel. The $20.00 on the old price will give you $3.03 gallons of fuel. With the government’s initiative and with a price of $6.31, you would spend $19.10 on the same amount of gallons of fuel, therefore, you will only save 90 cents. If I spent $80.00 on fuel, I would save $3.55.

However, we know that the price of fuel will continue to rise. For this purpose, I will use a price increase of 5 percent. With a 5 percent increase in price, you will pay $6.50 per gallon and if you purchased $3.03 gallons of fuel, you would pay $19.68 and so, your savings is only 32 cents per gallon.

The impact on the prices of grocery items

Like fuel, consumers will not see a significant change in the price of grocery items. I will demonstrate a simple example for you.

Let’s say an item first cost is $1. The duty on that item will be 30 cents and the CPF will be 7.5 cents. Let us also say the freight on this item is also $1. Therefore, the landed price for that item will be $2.38. The grocery store has to make a profit, so let us say they do a mark up of 30 percent, the selling price will now become $3.09. With the government initiative and the assumption that there is no increase in the first cost, the landed price will now become $3.06 and so, you will only save three cents.

In the deputy premier’s speech, he stated that “prices on key food items are expected to increase by an average of 2.5 percent.”  With this, let us do a 2.5 percent on an item that originally cost $1. That item is now $1.025 but the landed price with the new initiatives will be $2.39. The selling price will become $3.10 and so your price will go up by 1cent.

$15 million is not a lot of money

Fifteen million sounds like a lot of money but really and truly it is not. Let us look at $15 million in terms of per capita.

It is assumed that there are at least 40,000 people in The Turks and Caicos Islands. I am not sure how many of these individuals are children but for this, I am assuming 10,000 of the 40,000 people are children. This means the remaining 30,000 people are adults.

Fifteen million divided by 30,000 people is 500. We can therefore conclude that the $15 million is basically $500 per person for the year and on a monthly basis, it is $41.67. Therefore, $15 million is not a lot of money.

Recommendations

If the government wants the fuel prices to be lower, then perhaps they should reduce, the import duty, the CPF and the taxes by 50 percent respectively.

If the government wants the groceries to be lower, then perhaps they should reduce the duties on key basket items and reduce the CPF by 50 percent respectively.

Reduce the customers’ tariff and CPF on those basic goods that consumers need regularly.

Increase the allocation of the funds to Invest TCI and expand the areas for grants so that other businesses can benefit.

I know a lot of people oppose price control but maybe we need to implement a temporary price control.

We also need to monitor the merchants to ensure that any initiatives the government implemented are passed onto the consumers.

Conclusion

I think the government should reverse those initiatives because in this article, I have demonstrated that it will not be impactful.

Anytime a government implements initiatives that are lower than the rising cost of items, the consumer will not benefit.

In order for the consumer to benefit, the initiatives have to be significantly higher than the percentage increase of the cost of living.

Reference:

TCIG approves $15 million in Concession package for residents to mitigate against potential inflation in the cost of fuel and food amidst war between Russia and Ukraine

24 March 2022

“On Wednesday the 15th of March 2022, the Cabinet approved a package of concession relief in the amount of $15 million for Turks and Caicos Islands residents. This included two main reductions in Customs rates as follows: 

    1. It reduced the rate of Fuel Tax from 85 cents down to 64cents; 
    2. It reduced the rate of the Customs Processing Fee (CPF) across the board on the importation of all goods, from 7.5% down to 5%. 

This will take effect on the 1st of April 2022, for an initial period of 12 months, subject to review by TCIG.  The ASYCUDA World customs declaration database will be configured to automatically calculate these reductions at the point that the declaration is made. A Customs Procedure code will be created and disseminated to all Customs Brokers shortly.

“The Government, the Ministry of Immigration and Border Services, and the Department of Trade encourage all businesses to ensure that the benefits of these concession reductions are passed on to the consumers. Mechanisms will be put in place to ensure that these benefits are felt by the consumer.” 

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