To Be Or Not To Be - Bahamians Want Answers On Vat
Tribune 242 Editorial:
BAHAMIAN businessmen are becoming more agitated as the date for the implementation of VAT nears with only reassurances from legislators that draft legislation as to what it will mean to them is on its way.
Gowon
Bowe, a Tax Coalition co-chair, has urged that the proposed legislation
be brought to parliament before it takes its summer recess.
“If
we don’t do a lot in the next six to eight weeks,” he said, “we would
be right back in the same situation we were facing when we were looking
at July 1 as the implementation date, with the business community again
saying that they don’t have enough time.”
Mr
Bowe said that the business community has still not had “the critical
elements. There is no legislation, no regulations on what will be
exempt, or what is ultimately going to happen. We need to urge the
Government to be proactive.
“There
is a concern,” said Mr Bowe, “that time isn’t on our side in that
regard. We understand that there was a lot going on in the Budget, but
now that is out of the way, this is the most critical time in terms of
our fiscal course of action. We have had some casual conversations with
the Financial Secretary and he had indicated that they were just waiting
on Cabinet now.”
John
Rolle, the Ministry of Finance’s financial secretary, recently
confirmed to Tribune Business that VAT preparation/readiness efforts
were being delayed because they were waiting for “final directions” from
the Government.
Government
brought two tax experts from New Zealand — one of the few countries
that has a good word to say for VAT – to advise legislators on its
merits and how to implement it.
Dr
Don Brash and Mr John Shewan, both closely involved in the
implementation of New Zealand’s Value Added tax in 1985-86, could not
emphasise enough the importance of an extensive education programme,
both for business and the general public. It was this programme that was
the secret of New Zealand’s success. Such a programme would be even
more important for the Bahamas, a country, unlike New Zealand, that has
no income tax, but relies solely on indirect taxation and trade tariffs.
In other words, Bahamians in general are not tax savvy.
“The
reason our education campaign was so successful,” said Professor
Shewan, “was because there was a commitment to an 18-month educational
programme, six months of which was prior to the implementation date, but
the most important things happened 12 months after the implementation
because there were a series of detailed explanation programmes targeted
at all kinds of groups.”
Government,
which had planned to implement the tax on July 1 —13 days ago — was
forced to delay it to January 1 next year — six months away – because,
not only was legislation not ready, but there was not enough time to
discuss it with the business community or to educate the public. Soon,
if government continues its thumb-twiddling, another delay for
implementation will have to be announced.
In
their report, the New Zealanders expressed concern “at the widespread
lack of understanding of how a VAT would operate in the Bahamas”. They
were also “concerned at the complexity of the VAT proposal as currently
envisaged (obviously government’s first draft on their arrival). This
complexity would lead to high compliance costs and potentially extensive
abuse of the system,” they predicted. Hopefully, this complexity has
since been simplified. The state of business in the country today can
certainly not absorb high compliance costs.
It
was explained that VAT was urgently needed, not only to expand
government’s tax base, but also for the country to be eligible to join
the World Trade Organisation (WTO). Having had to reduce its original 15
per cent tax proposal to 7.5 per cent, the government maintains that it
cannot afford to also reduce Customs duties. If joining the WTO is its
objective, then Bahamians can count on the VAT rate being increased so
that the Bahamas – a non producing country — can qualify for WTO
membership. Qualification means that all Customs duties have to be
abolished. Government, while explaining VAT, should also explain in
detail the advantages of the Bahamas having WTO membership.
Several
months ago, Social Services Minister Melanie Griffin outlined how our
sluggish economy has hurt those in the lower income brackets – the group
with the potential of being the most affected by VAT. With the
September opening of schools, Mrs Griffin said, there was a substantial
increase in demand on Social Services to feed and equip children for
school. At the time, she was being interviewed she said that 1,606 out
of just over 3,500 children had requested uniform assistance.
There was also more demand for food stamps, a relief system that is growing, she said.
Mrs
Griffin appealed to corporate Bahamas and private citizens to partner
with government to assist children in need. Recently the 58-year-old
Ranfurly Home for Children appealed for financial aid. Mrs Griffin said
government would assist to make certain that the Home, which has cared
for so many children sent by Social Services, would not have to close.
She also said that her Ministry will have to step into the breach to
assist those who might be severely affected by the implementation of
VAT.
A
few days ago, we were discussing VAT with a businessman who said that
what his company had traditionally set aside as donations for the
various charitable organisations and student scholarships would now go
to VAT. This shift in donations will put an even heavier strain on Mrs
Griffin’s Ministry. In other words VAT will force the public sector to
curb its generosity.
No
matter how we look at it, VAT is going to create a vicious circle, and
regardless of how it is introduced, Bahamians will not be satisfied
until the government demonstrates that it too is making substantial cuts
in its unnecessary spending. Bahamians are not going to pay taxes to
give government a licence to spend foolishly.
July 14, 2014
