Tuesday, November 5, 2013

The Coalition for Responsible Taxation on “phasing in” Value-Added Tax (VAT) over a three-year period in The Bahamas

Tax Coalition: Phase Vat In Over Three Years

Tribune Business Editor

The Government should examine “phasing in” Value-Added Tax (VAT) over a three-year period, a co-chair of the private sector’s Coalition for Responsible Taxation warning: “You can’t implement taxes to the peril of the economy.”
Robert Myers, speaking to Tribune Business as the Coalition released its VAT ‘Queries and Recommendations’ submitted to the Government on October 28, reiterated that the “fear” in the private sector about the consequences of tax reform stemmed from the Government’s failure to-date to prove adequate information and consultation time.
Agreeing that the Government could be “100 per cent right” over the direction it was taking with tax reform, Mr Myers said it needed to show this was so by “sharing” all the studies and specifics it possessed.
“This is a fundamental change in this country’s way of doing business,” he told this newspaper. “This is a fundamental change in the way everyone lives and does business.
“Let’s get all the facts on the table and hash it out. There’s no need top throw rocks at each other. We all benefit from the right solution. Let’s make the right decision as a nation.”
The Coalition identified 12 areas of ‘macroeconomic concern’ in its latest missive to the Government over VAT, and Mr Myers told Tribune Business: “First and foremost, you cannot implement taxes to the peril of the economy.
“That is the primary objective. There are just too many examples, in Barbados, Grenada, where their economy was troubled. They tried to resolve it by introducing new taxes, and that sent the economy backwards.”
Mr Myers said Grenada, for example, was now reducing VAT on construction materials and providing incentives to encourage contractors after the tax’s implementation “killed” the sector there.
While there was no evidence to suggest something similar would happen in the Bahamas, he added: “It’s just to say that if this is happening elsewhere, maybe we should take a look at it.”
In the ‘Queries and Recommendations’ sent to the Government, the Coalition reiterated that VAT’s implementation was “a seismic change to the system” that meant both the Government and private sector needed adequate time to prepare.
Restating its previous call for VAT implementation to be delayed for at least 12 months after the relevant legislation, regulations and Tariff Schedule had been released, the Coalition added: “Consideration should be given to phasing in VAT over a reasonable period, for example, three years, to minimise the potential negative impacts of inflation.”
Government minister and Ministry of Finance officials, particularly those working on VAT’s implementation, have suggested that the Bahamian business community’s fears are “unwarranted” and, in some instances, amount to ‘scaremongering’.
But Mr Myers and the Coalition have both pointed out that this has resulted directly from the ‘information vacuum’ created by the Government’s failure to publish the specifics on VAT, including studies on its likely impact that have been done - or are being done - by the likes of the International Monetary Fund (IMF) and Inter-American Development Bank (IDB).
Acknowledging that this had sometimes resulted in “hysteria and one-sided debate”, the Coalition added: “The lack of such information to date has contributed to the paranoia and apprehension of the business community and consumers.”
Mr Myers told Tribune Business: “There is this perception, fear in the marketplace, and you are having the result of not providing adequate time and information.
“Maybe you [the Government] know what we don’t know, but share it. Maybe you’re 100 per cent right. We don’t know, but share it. It’s so frustrating.
“You can already see certain businessmen, the fact that they’re now backtracking themselves on certain projects, is not good for the economy. That creates uneasiness.”
The Coalition, meanwhile, told the Government that VAT’s inflationary impacts, which has admitted itself, could have “consequences” for the Bahamas’ economic recovery.
Calling on the Christie administration to collaborate with the Bahamian private sector “to obtain the greatest possible buy-in by registered businesses and consumers”, the Coalition warned: “The majority of businesses have been experiencing an inability to increases prices in the past few years.
“Gross profit and net profit margins have been reduced following the recession, with no evidence of an ability of consumers to withstand price increases.
“Low net profits or net losses threaten the viability of small and medium-sized businesses.”
Mr Myers praised the Government for containing inefficiency, waste and shrinkage in its spending, and agreed that it needed more revenue to tackle its chronic deficit/debt problems, and the imbalances in the public finances.
But he warned: “To make a mistake and it backfires.... Do you want growth to slip by 2 per cent, 4 per cent, slip into negative growth? I don’t think that’s the desired result.
“Maybe take longer to get into this. No one says you don’t need more revenue, but let’s be measured.”
And the Coalition co-chair added: “We’ve got to make sure this is right for us, and not just right for the business community or right for the Government.
“It’s got to be right for the consumer, right for the private sector and right for the Government. Right in the broadest sense of the word. It’s just not been done. That kind of inclusiveness is not there.”
October 04, 2013