Two per cent is so negligible as to be meaningless
Enough has been written already about the far-reaching effects of that 14% electricity hike. In brief, it is a commodity that is an integral part of most processes; it will contribute to an overall increase in wholesale, retail, and security costs; and it will impact the final prices of many, if not most, consumer products. Now as that 14% is handed down to the public, the opportunity could be seized to affix another five per cent mark-up, give or take, under the convenient cover of the VAT umbrella. None would be wiser. The picture is stark and grim for many day-to-day items, and for those citizens who need them, which is nearly everyone.
Against such a backdrop and developments, I can foresee that the government might be prompted to introduce price controls, and an accompanying bureaucracy to ensure adherence. Yes, I know –shades of yesteryear. I tender that possible price gouging and price controls (if they appear) will only serve to exacerbate muted tensions and settled distrust.
Having said this, there is the likelihood of some businesspeople looking at the landscape extremely critically, throwing up their hands in dismay, and calling it a day in resigned disgust. Shortages can return; and so, too, another strain of the underground economy, this time with a focus on smuggling and the collaborating apparatus that makes such things happen. All things considered, I do not like where the 2017 budget promises to lead.
In terms of the 2% corporate tax reduction, the best that can be said for that fragment of a near invisible (and intangible) bone is that two is better than nought. It is so negligible as to be meaningless. I think that sound business people have already dismissed the mentioned two per cent scrap as lacking in imagination and vision, and have made it a prime target for derision. From my perspective, it would have been much more constructive (and more signal) if the government had proposed a corporate tax reduction of five per cent for 2017, with the commitment to follow up with another five per cent fall in 2018, circumstances permitting. I believe that a bottom rate of twenty per cent would incentivize businesses right now to start to work on plans to expand and to capitalize, while using the promised cumulative ten per cent largesse as the financial accelerant.
Therefore, when the fourteen per cent VAT on electricity becomes reality (what is there to give it pause?), final products more expensive, and business inventory turnover decelerates, there is nothing to keep businesspersons in business. It could be that, as early as this writing, some of the real savvy captains of commerce have done their own measurements and projections, and are casting about for an exit strategy.
So, there it is, as envisioned in 2016: less demand, less sales, less revenue, less profits, less jobs, less taxes (that too), less ventures, and less confidence all around. Because of all of the foregoing, the long term forecast looks really bleak.
Yours faithfully, GHK Lall