Consumer group calls for VAT cuts

Says rise in food prices unrelated to global prices or production costs.

food shopping 88 224 (photo credit:)
food shopping 88 224
(photo credit: )
The Israel Consumer Council has called upon the government to reduce the value added tax on certain foods and pharmaceuticals to offset the rise in food prices. "The world food crisis and the related price hikes raise the question of price regulation and VAT policy in Israel as a way to deal with this crisis, protect the consumer public in general and more specifically the weaker parts of the population," Israel Consumer Council director Ehud Peleg said Sunday. "We are calling for regulatory measures to limit food price increases that are not related to the rise in global prices or higher production costs to protect consumers and prevent food suppliers from 'jumping on the wave' of price hikes that are unjustified." Over the past week, local consumers have been hit by a wave of price increases. Rice prices in Israel rose between 50 percent and 70% as global prices last month hit a record high on fears that rice-growing countries would restrict exports. The Strauss Group, citing higher commodity prices, announced price hikes of 5% for confectioneries and of 5.5% to 8.5% for coffee products. Cooking oil prices are also expected to go up. Ahead of Independence Day, the price of meat is expected to rise by 30%, while the price of other basic foods such as milk and bread will likely increase. The Israel Consumer Council said the VAT for basic goods and services should be reduced, similar to what many western countries have done. "In France, for example, the VAT rate for agriculture food products has been reduced to 5.5% and the VAT on medical drugs, which don't enjoy a refund from the health service, is 2.1%," the council said. "Significant reduction of the VAT rate on food products in Israel will narrow price increases." The council said the basket of price-regulated basic foods should be expanded to include oil, pasta and basic fruits and vegetables. Uriel Lynn, president of the Federation of Israeli Chambers of Commerce, expressed doubt over the effectiveness of reducing VAT rates to offset food and energy price hikes. "Past experience shows that the cost of cutting VAT rates is high and does not significantly reduce the price of goods," he said Sunday. "Instead, the government needs to implement measures to increase the net income of low-earners and raise old-age pensions and benefits." Lynn urged the Finance Ministry to cut income taxes for workers earning a salary of up to NIS 5,000 so that they would not pay more than 1% in taxes.