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Cablegate: Cote D'ivoire Extends Tax Holiday On Foodstuffs

VZCZCXRO1932
RR RUEHMA RUEHPA
DE RUEHAB #0441 1901438
ZNR UUUUU ZZH
R 081438Z JUL 08
FM AMEMBASSY ABIDJAN
TO RUEHC/SECSTATE WASHDC 4361
INFO RUEHZK/ECOWAS COLLECTIVE
RUEHRN/USMISSION UN ROME 0022
RUEHRC/USDA FAS WASHDC 0136
RUEATRS/DEPT OF TREASURY WASHDC
RUEHRC/DEPT OF AGRICULTURE WASHDC

UNCLAS ABIDJAN 000441

SENSITIVE
SIPDIS

STATE FOR AF/W-EPLUMB, EEB/TPP/ABT/ATP JSPECK, TREASURY FOR
DPETERS, US MISSION ROME FOR US REPRESENTATIVE TO FAO
DAKAR FOR FAS RHANSEN

E.O. 12958: N/A
TAGS: ECON EAGR ETRD EAID IMF IBRD PGOV IV
SUBJECT: COTE D'IVOIRE EXTENDS TAX HOLIDAY ON FOODSTUFFS

REF: A. ABIDJAN 279
B. ABIDJAN 214

1. (U) On July 2, 2008, the Ivorian government announced a
three month extension of special tax reductions on basic
foodstuffs (rice, milk, palm oil, fish and tomatoes). The
reductions were originally announced on March 31 and put into
effect on April 1, following demonstrations against the high
cost of food (Reftel B) and were meant to contain the
political effects from the public's discontent about the
rising prices of basic commodities. Measures extended were a
VAT reduction from 18 to 9 percent as well as the suspension
of the development tax on rice farming.

2. (U) Despite the government's announcement, the consumers'
association which claimed responsibility for the March
demonstrations stated that these measures have had no effect
on consumers' purchasing power due to a lack of price
enforcement. The group expressed concern that imminent
increases in the price of gasoline, diesel, and cooking gas
would exacerbate the impact of price increases on consumers'
wallets. (Note: On July 6, the government announced new
price increases for petroleum products, effective midnight
July 7.)

3. (SBU) Comment. Given the just announced price increases
in petroleum products, the government likely felt that it was
politically necessary to extend the tax holiday on the basic
commodities. However, the measures will prolong the fiscal
drain on the national treasury produced by the tax
reductions. The IMF estimated in April that the "temporary"
tax measures would cost the Treasury USD 20-25 million.
Extension of the measure will likely produce a similar
shortfall. Given the widely discussed liquidity problem at
the Treasury, this move will only diminish Finance Minister
Diby's options as he struggles to find the means to pay for
elections, for national identification and voting cards,
disarmament and the new national service program designed to
absorb demobilized ex-combatants. End Comment.
NESBITT

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