May 18, 2009

A VAT on Fruit and Produce?

There is a plan in Israel to levy a16.5 percent value added tax on fruits and vegetables. Like other world economies, Israel is looking for new sources of revenues to deal with the effects of a recession. The feeling is that this will be enforceable only in supermarkets and in many independents, creating a huge “black market” for fruits and vegetables. Said Rami Mandel, CEO of the Coop Israel supermarket chain, "We are expecting a massive transfer of customers to switch from buying at regular supermarket chains, which pay taxes and employ thousands of people, to buying at markets where prices change by the hour. As a result, we could see profits from sales of fruits and vegetables drop by 20 percent." Produce sales account for 13% of supermarket business, Mandel said.
As part of the 2009-2010 budget deal, which was approved by the cabinet, the government seeks to raise VAT on goods from 15.5% to 16.5% starting this July and levy VAT on fruit and vegetables, which until now were exempt.

This plan does not make sense to some of my friends in the food industry in Israel. They are particularly concerned over its effect on the many poor Jews who buy kosher. They also argue that it will have a damaging effect on Israel’s supermarkets. Today, more than 60% of produce is sold in supermarkets, but if Israelis learn to shop for fruits and vegetables in open-air markets, the supermarkets will be the losers. Meir Yifrah, of the Fruit and Vegetables Association says "The damage to fruit and vegetable growers, and to the agricultural sector as a whole, is estimated at hundreds of millions of shekels, which the sector, in a time of an economic crisis, cannot absorb." My sources tell me that this proposal will fail in the Knesset. I hope it does because it just does not make any sense in any economy, but particularly now.