...households would ultimately be better off with value-added tax (VAT) compared to payroll tax

VAT better than payroll tax, Oxford Economics finds

By ROYSTON JONES JR.
Guardian Staff Reporter
royston@nasguard.com

While the introduction of value-added tax (VAT) would slow the economy down and result in a “surge in inflation” in the short-term, households would ultimately be better off with VAT compared to payroll tax, according to a new study by Oxford Economics.

The Bahamas Chamber of Commerce and Employers Confederation (BCCEC) and the Coalition for Responsible Taxation commissioned the report.

The report, titled “An assessment of the macroeconomic implications of alternative strategies for deficit reduction in The Bahamas”, examined four models of VAT and two models of payroll tax over a 10-year forecast.

The government has said VAT, which was originally proposed to be introduced on July 1 at a rate of 15 percent, will be delayed and introduced at a lower rate, although the exact date or rate has not been announced.

Among the report’s key findings is that introducing VAT at a rate of 15 percent or 10 percent with a broad range of exemptions would result in inflation of over 6.5 percent in the first year VAT is introduced.

The report said all tax models examined have much smaller differences in growth in the economy in the long-term.

The models include: introducing VAT at a rate of 7.5 percent or 10 percent with a narrow range of exemptions; 10 percent or 15 percent with a broad range of exemptions and payroll tax at a rate of six percent or 12 percent where employees and employers shares the cost equally.

The report noted “all strategies for deficit reduction are estimated to have a broadly similar impact on the supply side capacity of the economy”.

However, the report said introducing VAT at a rate of 7.5 percent or 10 percent with a narrow range of exemptions would result in the highest long-term level of gross domestic product (GDP) growth.

The report also said those models would result in a “permanently lower” inflation rate.

The report admits that some assumptions had to be made regarding the future of The Bahamas’ fiscal policy, including changes in tax rates, the introduction of new taxes and government spending.

The report said introducing VAT at a rate of 15 percent or 10 percent with a broad range of exemptions is more preferable from an equity perspective, but indicated that it is not the most efficient way to address such concerns.

The report also indicated that broad exemptions would reduce the impact on lower income households, but that is a “second-best solution” because the benefits apply to everyone, irrespective of income.

If the government were to compensate directly lower-income households through means-tested personal transfers implemented, this would be a more efficient response to the distributional issues raised by the implementation of VAT, the report said.

In April, Deputy Prime Minister Philip Brave Davis said the government is considering implementing a compensation element to VAT to assist low-income families, similar to New Zealand.

Following the introduction of the goods and services tax (GST) in New Zealand, the government implemented a family tax support system that provided low-income families with wage supplements.

The cash transfer was determined by the size of the household, according to New Zealand VAT expert Don Brash.

No surprises

In an interview with The Nassau Guardian, BCCEC Chairman Robert Myers said the decisions the government makes based on the findings of the Oxford Economics report are critical.

Asked whether the report’s findings surprised him, Myers said, “No. It didn’t surprise us. The numbers that showed big increases to inflation, the reduced numbers of VAT, the payroll tax is actually quite efficient.

“But there are other external issues that impact that like the WTO (World Trade Organization).

“The question really becomes do we have a short-term tax and then a long-term tax, do we try and come to an agreement and fit something in that works in between.”

Myers, who is also the co-chair of the Coalition for Responsible Taxation, said the report was submitted to the government on Tuesday night.

He said the Chamber of Commerce will form a consensus before making its position public.

The chamber is expected to release its position paper on proposed tax alternatives sometime next week, Myers said.

He encouraged Bahamians to review the proposed solution models in the report and form their own opinion.

The report can be read on wakeupbahamas.com

May 22, 2014

thenassauguardian

Value added tax (VAT) and Debt Collection

Debt Collection Expert Speaks Out Regarding VAT and Debt Collection

 

There has been a lot of talk throughout The Bahamas recently regarding the implementation of VAT and the collection of taxes.  While for the most part the talk and views expressed are from respected individuals who are experts in their respective fields, none of the persons can claim to be experts in the field of “debt collection” in general or “debt collection in The Bahamas” in particular.

Apex Management Services has been in business for over 15 years and is the only debt collection agency in The Bahamas that is capable of handling the full spectrum of debt collection with state of the art technology and resources that are all under one roof.

While there are several debt collection options that include; In-house Collectors, Internal or External Attorneys, Internal Call Centers, External Call Centers and Offshore Call Centers, none of the options are as efficient and effective as a Local Full-Fledged Debt Collection Agency, which can handle matters from start to finish without gaps.

Some of the inherent flaws that are associated with the various collection options that often substitute for Debt Collection Agencies are as follows:

Internal Attorneys at best would function similar to an external attorney with the difference being that they would be more accessible.  At worst an Internal Attorney would also have a focus on other duties, which would diminish the attorney’s role as a specialist with 100% focus on debt collection.  Although Day Court is an option, as a matter of convenience, many civil matters, which fall in the Magistrate Courts jurisdiction, are heard in evening court, which would often necessitate odd hour for an internal attorney.

External Attorneys do not operate debt collection agencies; in many instances their main focus is to obtain judgment with little if any interaction with the debtor.  Prior to obtaining judgment and after judgment is obtained; attorneys do not have the capacity to provide the care and attention to each and every individual account.  In most cases attorneys will bill the client after judgment is obtained and the client is still left to collect the amount of the claim.   Many matters handed to attorneys go uncollected long after the attorneys have been paid.

Onshore Call Centers are on the opposite end of the spectrum from Attorneys, in the debt collection process.  While Onshore Call centers are extremely good at interacting with debtors, they have no enforcement capabilities.  If a call center operator is dealing with a debtor who is not cooperating or refuses to pay, the call center has no recourse but to send the debt back to the client who will most likely send it to an attorney thus creating a time and process gap, when time is of the essence.

Furthermore Call Centers have no capabilities to locate debtors whose whereabouts are unknown (Skip Trace) even though a large percentage of bad debt matters require Skip Tracing.  At best, Call Centers are only suitable for early stage debt not late stage debt.

Offshore Call Centers have the same disadvantages as Onshore Call Centers plus the following added disadvantages.

Communication and Culture - In most cases Offshore Call Centers operate in countries where there are cultural differences that are often subtle but significant.  This is compounded when English is not the native language or where patois is predominant.

Geography – Psychologically if a debtor senses that there is some significant distance between the call center operator and themselves they are less likely to cooperate or pay.

Speaking from experience gained working with a major commercial bank that implemented an offshore call center option that failed miserably, Offshore call centers or Offshore Collection Agencies do not work.

The differences that a properly equipped and professional Debt Collection Agency such as Apex makes to the collection process that none of the above options can provide are as follows:

•          Principal has over 30 years of Credit and Collection Experience.

•          Principal is an accomplished Fellow and Member of the largest International Debt Collection Trade Association.  ACA International, the Association of Credit and Collection Professionals.

•          Agency has been in operation for over 15 years

•          Easily accessible well-maintained and spacious offices conducive for customer service.

•          Adequate telecommunication technology and operators to handle thousands of calls daily.

•         Auto-dialers, which exponentially increase the calling and communication capacity of the call center.

•         SMS technology which exponentially increases the communication capacity of the call center.

•          State of the art Collection Management Software capable of handling unlimited number of accounts with integrated financial accounting, diary management and many additional features.

•          State of the art Legal Case Management Software

•          24/7 client web access

•          Skip Tracing Database and Skip Trace Network

•          In House Attorneys that are 100% dedicated to debt-collection-litigation.

“International financial institutions, such as the World Bank and International Monetary Fund (IMF), have propagated a conventional wisdom that revenue collection authorities are more effective when they operate autonomously from the state, as a commercialized entity at arms length from government rather than as a department within the government administration”. 

(Source: Preconditions for Effective Tax Collection, By – Economic Policy Research Unit, Bergen Norway)

A growing number of U.S. states are expanding their relationships with private collection agencies to settle long-overdue taxes.

Her Majesty Revenue & Collection (HMRC) has outsourced some of its debt collection to external agents.  Following a pilot, a notice entitled ‘Modernizing debt collection’ was released explaining that four debt collection agencies will be employed by HMRC to collect an outstanding £140 million of outstanding tax debt.  (Source: HMRC sends in debt collectors for unpaid taxes. By-Nick Lodge, Director of debt management and banking HMRC.)

In Spain alone more than 800 companies specialize in collection of outstanding debt, handling a total of 71 billion euro and generating close to 560 million euro for their business. (Source: DBK, “Empresas de Gestion de Impagados)

With an obvious eye on an opportunity to capitalize on the existing situation, a number of over-night debt collection vendors are beginning to surface without any experience or capacity to perform at a level that would be required.

It would be a shame if we as a country succumb to the temptation to award debt collection contracts based on patronage rather than on merit, at such a time when our country’s financial wellbeing is at stake.

March 28, 2014

Media Contact: Rory Higgs  
Phone: 424-0985 (Cell)

Email: rhiggs@apexbahamas.com

 

The value added tax (VAT) rate and the taxation of web shops

Ryan Pinder: VAT rate will depend on web shop taxes

By KRYSTEL ROLLE-BROWNR
Guardian Staff Reporter
krystel@nasguard.com

The value-added tax (VAT) rate will depend in part on the amount of money the government is able to derive from the taxation of web shops, Minister of Financial Services Ryan Pinder said yesterday.

"One of the reasons that the prime minister could say that we’re not going to come in at a 15 percent rate is because there is now discussion about the regularization and taxation of domestic gaming and that industry,” Pinder told The Guardian.

“Well what that does is that broadens that tax base, and when you broaden the tax base, tax rates come down and can be lower with less impact on Bahamian people and that's ultimately what we're trying to do.

“…When you see other industries that aren’t taxed that you can bring into the tax rate, the rate goes down.”

Tourism Minister Obie Wilchcombe announced earlier this month that Cabinet will review a proposal to regulate web shops by the end of this month.

Wilchcombe is pushing to regulate web shops by July 1.

The government is expected to tax web shops and winnings.

The taxation of web shops and the introduction of VAT are components of the government’s plan to improve the country’s finances.

Christie said recently the government will introduce VAT at a rate lower than the 15 percent previously announced.

Pinder said the government is still working to determine the introductory rate.

The government’s considerations will be influenced by the Coalition for Responsible Taxation, which is conducting a study on VAT and other tax alternatives.

While the coalition said it will present an alternative that the government could effectively implement by July 1, Pinder said the coalition’s report, “could effect the timing of the implementation”.

The government’s target date is July 1.

But Christie has hinted there might be a delay.

Christie also said he can still be persuaded by the private sector to introduce an alternative tax if it proves to be viable.

Chairman of the Chamber of Commerce and Employers Confederation Chester Cooper said yesterday that while it is still unclear what direction the tax conversation will go, the chamber is helping businesses prepare for the introduction of VAT.

The chamber established the Coalition for Responsible Taxation.

“Our view is the government says it’s going to be VAT and therefore our members must be prepared for VAT,” he said.

Cooper said the chamber is conducting workshops for business owners across the country.

March 25, 2014

thenassauguardian

The People’s Foundation Economic Empowerment Organisation (TPFEO) alternative to Value Added Tax (VAT)

Group Suggests Exporting Natural Resources as VAT Alternative

By Jones Bahamas:

Rather than implementing Value Added Tax (VAT), the People’s Foundation Economic Empowerment Organisation (TPFEO) is a calling on the government to tax companies whom they claim gain billions of dollars from mining and exporting the country’s natural resources.

President of the TPFEO Pastor Micklyn Seymour said if the government were to tax these companies appropriately the country’s national debt could be reduced.

“It is a known fact that our nation has some of the richest depositsand best qualities of calcium, aragonite and salt found in the world,” Pastor Seymour said.

“It is also a known fact that every year, tons of these minerals are being exported to the benefit of a few persons and to the disadvantage of the many. These products are generating billions of dollars on a yearly basis for these companies that have been allowed to mine these minerals with little or no benefit to the country.”

Mr. Seymour said the country’s natural resources have been exploited for too long and it will give the government two weeks to be transparent and reveal the names of the companies he alleged are guilty of this before his organisation goes ahead and releases the information.

The organisation’s president is also calling for the government to amend laws to facilitate the nationalisation and ownership of all natural resources and minerals to Bahamians.

He added that the government should also consider creating a ministry that focuses on managing The Bahamas’ natural resources.

“Establish a Ministry of Natural Resources to manage and make policies which will have direct responsibility for all natural resources and do researches relative to the development of these areas,” Mr. Seymour said.
“Thus, hereby ensuring transparency and accountability and that the interest of the Bahamian people would be safeguarded.”

Mr. Seymour added the organisation is preparing to launch a national campaign to educate Bahamians on the country’s natural resources, which he said could be a billion dollar industry.

March 19, 2014

The Bahama Journal

Failing to implement Value Added Tax (VAT) would see The Bahamas Government’s fiscal consolidation plans “veer considerably off track... says the International Monetary Fund (IMF)

Gov't To Collect Just Over Half Initial Vat Goal

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Government will realise just over half of its projected Value-Added Tax (VAT) net revenue increase in the first year, the International Monetary Fund (IMF) has warned, with forecast increases in Customs and real property taxes also over-optimistic.

The IMF, in its long-awaited Article IV report on the Bahamas, said the likely delays in implementing VAT, and this lack of nation’s inexperience in managing it, given the absence of an already-existing consumption tax, meant first year revenues from the new tax were likely to amount to just 1.3 per cent of GDP.

That percentage is almost a full percentage point lower than the 2.2 per cent net revenue gain the Government is forecasting. In dollar terms, assuming an $8 billion Bahamian GDP, the IMF’s 1.3 per cent is equivalent to a $104 million revenue increase - more than $70 million below the Government’s $176 million.

The Article IV report also suggested that the Government had over-estimated the revenue boost it would receive from ongoing Customs and real property tax reforms.

While the Ministry of Finance has pegged the improvement as equivalent to 0.5 per cent of GDP for Customs, and 1 per cent for real property tax, the IMF’s are 0.3 per cent and 0.6 per cent, respectively.

Collectively, the IMF’s projections are for revenue improvements that, in dollar terms, are $48 million below the Government’s for Customs and real property tax reforms.

The Fund, meanwhile, placed delays in implementing fiscal consolidation as among the risks likely to have the greatest negative impact on the Bahamian economy, alongside crime, a major hurricane, another US fiscal shock and “disappointing results” from Baha Mar’s operational start.

Apart from crime and a natural disaster, the IMF rated a delay in fiscal consolidation as the most likely of these scenarios to happen - something that could “pose risks to long-term debt sustainability and the country’s investment grade credit rating”.

This again shows the pressure the Government is under to make meaningful revenue and fiscal reforms, while at the same time doing nothing that would impair economic growth.

It also highlights the dilemma facing the Christie administration and private sector, which have agreed that reform must happen but are divided on the ‘what’ and ‘how’. In trying to ensure the Bahamas makes the right decision, neither can delay indefinitely.

Touting VAT as providing “a more efficient means to broaden the tax base, increase revenues and improve the effectiveness of tax administration more generally”, the IMF report said the proposed 15 per cent rate, based on experience, was likely to generate gross revenues equivalent to 7 per cent of GDP.

This translates into $560 million, in line with the Government’s projections, with the Christie administration’s VAT net revenue gain pegged at 2.2 per cent of GDP.

The IMF, though, cast doubt on whether the Government would hit that target in the 2014-2015 fiscal year, if indeed it is introduced in time, due to “capacity limitations in revenue management”.

“Other limiting factors in the initial year of the reform include delays in rolling out the public campaign and securing passage of relevant legislation in Parliament, which could complicate the timely acquisition and testing of IT systems needed in both the public and private sectors,” the Fund added.

“The absence of a consumption tax, and the lack of local experience in its management, would contain the initial revenue gains from the VAT as well. Because of these constraints, staff projects the net revenue gain from the VAT at 1.3 per cent of GDP for the initial fiscal year 2014-2015.”

The IMF warned, though, that failing to implement VAT would see the Government’s fiscal consolidation plans “veer considerably off track”, with the central government’s debt-to-GDP ratio “already above” 60 per cent by the time the next fiscal year starts.

“Staff underscored setting the VAT base as broadly as possible, and encouraged the authorities to ensure that adequate efforts and resources are deployed to secure the timely implementation of the reform,” the Fund added.

It also disclosed that, combined, the Customs and real property tax departments were generating revenues “below 50 per cent of the potential”.

“The Bahamian Customs and real property tax departments rely heavily on manual procedures and outdated information systems. As a result, revenue collection is currently estimated at below 50 per cent of the potential,” the Article IV report said.

“Envisaged reforms aim to bring management of the two revenue agencies up to international standards, involving extensive computerisation of revenue assessment and collection functions, and introduction of risk-based monitoring of operations.

“Staff concurred with the authorities that reform of the two revenue departments could yield significant revenue gains. However, given pervasive capacity limitations and the record of low tax compliance, staff urged caution in factoring the anticipated revenue improvements into the medium-term fiscal framework.”

Elsewhere, the IMF report showed that collective public corporation debt (guaranteed by the Bahamian taxpayer for the likes of Bahamasair, Water & Sewerage etc) had increased from 10.5 per cent of GDP in December 2008 to 16 per cent at end-June 20134.

“The Bahamian public corporations continue to face significant financial challenges, notably stemming from inefficiencies in operations (excessive staffing, aged facilities), but also reflecting these entities’ tacit social duty to provide affordable services to all residents including in remote Family Islands,” the Fund added.

The Government’s fiscal plan calls for tax revenue to increase by an average 0.8 percentage points of GDP over the next five years, with the debt-to-GDP ratio falling from a 59.5 per cent peak to 55 per cent by the 2017-2018 fiscal year.

The bulk of the revenue increase will come from VAT, with “only moderate savings achieved on government expenditures in view of limited spending flexibility”.

With Baha Mar and other projects set to boost private sector employment prospects, the IMF said 
“pressure on central government hiring should be manageable beyond 2014, permitting limitation of wage outlays to the last three years’ average of 7.4 per cent of GDP”.

But, despite government projections that the existing 1.9 per cent primary budget deficit will be balanced by the next fiscal year, the IMF warned that there were “downside risks” due to over-optimistic fiscal and growth forecasts in the past.

“The forecast track record shows a tendency toward optimism in staff forecasts of real GDP growth and the primary balance, pointing to downside risks to the baseline scenario. This underscores the need for rigorous adherence to the ongoing fiscal consolidation programme,” the IMF said.

March 10, 2014

Tribune 242