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(photo credit: )
The proposed 16.5 percent value added tax on fruits and vegetables will lead to more black market business, lower demand, make the produce more expensive and hurt the poor, businessmen and farmers warned Thursday.
"The VAT levy on fruits and vegetables will narrow the purchasing power of consumers in general, and the less well-off in particular, who will look to buy at places where it will be difficult to impose the tax, such as the open-air markets at the Carmel market, Talpiot or Mahaneh Yehuda," Rami Mandel, CEO of the Coop Israel supermarket chain, told The Jerusalem Post Thursday on the sidelines of an emergency meeting by the Federation of Israeli Chambers of Commerce in Tel Aviv.
"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," he said. "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 on Wednesday, 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 was exempted.
Today, more than 60% of produce is sold in supermarkets, which would make VAT collection easier. But the problem of how to impose the tax on produce stands in open-air markets is expected to be a difficult one, as vendors do not have the time or facilities to record all transactions.
"The decision is expected to increase the volume of tax evasion by vendors on the markets and boost black market activity, as some vendors might charge for the VAT but not turn it over to the tax authorities. Thus, part of the expected VAT receipts will not be collected," said Meir Yifrah, of the Fruit and Vegetables Association. "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."
Farmers are concerned that a VAT levy will make fruits and vegetables more expensive and reduce demand.
Social Welfare Minister Isaac Herzog predicted that the VAT levy on fruits and vegetables would not receive Knesset approval because of fierce opposition throughout the political spectrum.
"There is great opposition to the imposition of VAT on fruits and vegetables from Labor and Shas ministers as well as other parties," he said Thursday at the manager's club of the Kibbutz Industries Association.
"In the end, it will be scrapped from the budget," Herzog said.