Prices unaffected by VAT cut

The prices of most regulated goods failed to decline when the value-added tax was reduced by one percentage point, according to a report from the research and information unit of the Knesset.

By SHARON WROBEL
September 14, 2006 06:35
1 minute read.
tax cuts 88

tax cuts 88. (photo credit: )

 
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The prices of most regulated goods failed to decline when the value-added tax was reduced by one percentage point, according to a report from the research and information unit of the Knesset. The document, which was initiated by MK Ya'acov Litzman (United Torah Judaism), chairman of the Knesset Finance Committee, showed that the reduction in milk and egg prices was delayed by a month. As a result, retailers made NIS 10 million to 15m. According to Jonathan Erlich, the economist who prepared the report, there were cases where the VAT cut coincided with the annual update in prices for dairy products, but the cost to consumers was not lowered at any point because of the VAT cut. The expectation was that the VAT cut to 15.5 percent from 16.5%, which came into effect on July 1, would lower prices by 0.86% and benefit the working poor and consumers in general. Instead, according to the report, in many cases the beneficiary of the VAT cut was suppliers, merchants and private shop and chain owners. At the beginning of the month, Litzman proposed raising the VAT to pay for the war in Lebanon. Cutting VAT by 1% costs the state about NIS 3.4 billion a year in lost revenue. "Cutting VAT was a big bluff. Only the rich, who buy Mercedes-Benzes, benefited from the VAT cut. It was a trick, and the VAT cut should be canceled," said Litzman. Goods whose prices are regulated include school books, dairy products such as milk, butter and cottage cheese, and bread, yeast, electricity and gasoline. The report found that bread and salt prices, which are regulated by the Ministry of Industry, Trade and Labor, were lowered by 5 agorot on July 3. Bread prices were lowered by an average rate of 1.7% and salt prices came down by an average rate of 3.6%, while yeast prices did not change as a result of the change in VAT but were rounded up as a result of a new price tariff issued by regulators.

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