Value Added Tax (VAT) is viewed by governments as an attractive option ...as it taxes both goods and services

VAT: A regional perspective

Bahamas behind region in implementation of VAT

By CANDIA DAMES
Guardian News Editor
candia@nasguard.com

A 15-minute video on the impact Value Added Tax (VAT) has had on the twin-island state of St. Kitts & Nevis has been making the social media rounds in recent weeks, posted and re-posted by many Bahamians linked in the online community.

The video, moderated by Rev. Conrad Howell of the Turks and Caicos Islands (TCI), was created ahead of what had been the planned April 1, 2013 implementation of VAT in TCI.

The video features a number of prominent citizens of St. Kitts & Nevis, including business leaders, former Minister of Finance Richard Caines, and also everyday citizens outlining the “negative” impacts VAT has had on their economy since its implementation three years ago.

Business leaders speak of having to close their businesses, of the sharp and sudden rise in the cost of living.  Other citizens speak of the stunning decline in their quality of life.

Such reports have increased fears among an already worried Bahamian population preparing for the introduction of VAT at a rate of 15 percent on July 1, 2014.

In the absence of information on the likely impact of VAT on their way of life, and on their economy, many Bahamians view this video as a model of things to come, notwithstanding recent reports from the International Monetary Fund (IMF) that St. Kitts & Nevis is seeing signs of an economic recovery.

Calvin Cable, executive director of the St. Kitts & Nevis Chamber of Industry and Commerce, told National Review that VAT had a “multiplier effect in terms of hardships on the populace”.

Cable said a consumption tax was removed and the VAT of 17 percent was introduced.

Two other taxes, the customs duty and the customs service charge, were retained in addition to the 17 percent VAT, he explained.

“It was tremendous on the cost of living,” Cable said. “You could have felt it in the number of packages being taken out by householders out of the supermarkets because the prices of goods went up pretty high, maybe about 25 percent overnight.”

As a result of VAT, many people in St. Kitts & Nevis cut back significantly, he said; many of them eliminated all luxuries.

“People stopped going out to restaurants to eat and that sort of thing because it was proving to be too much to carry,” he said.

VAT is viewed by governments as an attractive option as it taxes both goods and services.

The current narrow based tax system in The Bahamas has long been in need of an overhaul, according to government officials and various international agencies examining The Bahamas’ tax structure.

Cable also noted that prior to the implementation of VAT, there were very few charges or taxes on services in St. Kitts & Nevis.

“And so, what the population had to deal with now was that services were being charged VAT, which was not the custom before,” he said.

“For instance, doctors fees, lawyers fees, services in the tourism sector — and I know The Bahamas is big on tourism.  For instance, rented cars had to pay the 17 percent.”

Cable said VAT provided a “windfall” for the government in taking from the services sector, “but most of that was coming out of the local population”.

“So the amount of disposable income that they had on their side was drastically reduced and the buying power was drastically diminished,” he said.

In St. Kitts & Nevis, VAT is credited with bolstering the government’s fiscal position, but Cable said it happened “on the backs of the local people”.

Prior to the implementation of VAT, the country experienced debt levels above 200 percent, which made it one of the world’s most indebted countries.

The debt to GDP ratio is now inching closer to the 100 percent mark.

St. Kitts and Nevis’ Minister of Information Nigel Carty previously pointed to the “herculean effort that has been exerted to bring great relief to the country’s fiscal position at such an economically challenging time”.

IMPACT

While The Bahamas’ debt situation has not been as dire as that of St. Kitts & Nevis, it has reached a position where it is now unsustainable.

The Bahamas government has outlined its own efforts to bring relief to this country’s fiscal position.

As we noted in this space last week, government debt as at June 30, 2014 is projected to be $4.9 billion, compared to $2.4 billion as at July 2007.

Over the last two fiscal years, the government has seen a total deficit in excess of $500 million.

Almost one out of every four dollars in revenue collected by the government must be allocated to pay the interest charges on the public debt and cover the debt repayment.

With a significant change in the country’s tax system on the horizon, The Bahamas government has not yet produced any studies to show the likely impact VAT will have on the cost of living.

In every sector, there are understandably questions about how this new regime will affect business.

The man and woman on the street are equally concerned, as they already exist in a climate of high unemployment, where many are finding it hard to meet their obligations and disposable spending has been stretched to the limit.

The government is now asking citizens to shoulder the burden of reversing a burdensome debt situation.

Again, there is no doubting that it is time for action.  The chosen route is of course value added tax, which the government says is a central element of its tax reform strategy.

A new IMF report “Tax Reforms for Increased Buoyancy”, which was prepared for the government, notes that The Bahamas has low taxes compared to the rest of the world, excluding Central American countries.

It points out that many countries in the region have already introduced VAT, thus providing “a stable source of tax revenues”.

The report notes further that almost all the countries in the region have taxes on income and profits.  Furthermore, they have high excises on petroleum products.

While The Bahamas is only now moving in the direction of VAT, several of its Caribbean neighbors — among them, Barbados, Jamaica, Trinidad & Tobago — implemented VAT more than a decade ago.

Speaking of the Barbados experience, Lalu Vaswani, president of the Barbados Chamber of Commerce and Industry, described VAT as a “very efficient means of collecting tax as it increases the base on which the taxes can be collected”.

“I think it has been a positive impact, although it was not without its challenges,” Vaswani said in an interview with National Review.

Vaswani said that prior to the implementation of VAT in Barbados in 1997, the country had as many as 11 different types of duties or imposts that could be charged on imports.

“The increased effectiveness of collecting revenue gave the government more scope to do their development projects,” Vaswani said.

“From a business perspective, there are always anxieties associated with changes, and it is always desirable that there is a maximum amount of consultations even when the final positions are not known.

“So there is an understanding from ground level what are the goals, specific objectives and how you propose to do it because very often what you theoretically are trying to do may have a unique challenge, which may be identified before it is implemented and resolved and prevented.”

Former Barbados Prime Minister Owen Arthur noted in a 2010 interview with Erasmus Williams, press secretary to the prime minister of St. Kitts and Nevis, that high debt levels are inevitable in the absence of a tax base to generate the revenue needed to run a country.

“I supported the VAT when I was in opposition in Barbados because I thought it stood the test of reasonableness, but it was absolutely necessary,” said Arthur, whose administration introduced VAT.

“You’re living in a set of countries where year by year, period by period, governments will have to remove import duties.  What are you going to replace them with? And that is the basic question.”

Arthur said VAT created the basis for sustained growth “without fiscal difficulties”.

“It allowed us to be able to introduce programs to aggressively mount and sustain policies to eradicate poverty and we did that by creating the base for sustainable growth in the country,” he said.

NECESSARY EVIL

The most recent Caribbean country to implement VAT was St. Lucia, which did so just over a year ago at a rate of 15 percent.

Gerard Bergasse, president of the St. Lucia Chamber of Commerce, Industry & Agriculture, noted that VAT pulls more people into the tax net.

“When you are relying on other forms of taxation, they are not as broad based, so you have a much narrower tax base, which means that the tax on those people has to be higher to achieve your revenue targets,” Bergasse told National Review.

“But when you have a broad based tax like VAT, it means that everybody is contributing, so it makes it fairer.  And it does not take the fiscal tool out of government’s hands because they can still zero rate items, or zero rate a basket of goods that they feel would help less advantaged people.”

The Bahamas government’s White Paper on Tax Reform notes that zero-rating a supply implies applying a zero VAT rate and allowing credits for VAT paid on inputs.

It says that zero-rating should definitely be applied to exports as a VAT is designed to tax only domestic consumption.  Other than that, zero-rating should be strictly limited, if utilized at all, the document says.

Bergasse said that based on anecdotal evidence, many people would say that VAT was a necessary evil in St. Lucia.

“I still believe that VAT was the right thing for the government to have done and it’s moving in the right direction,” Bergasse said.

He said while the government is not now experiencing a huge windfall, as far as he is aware its revenue targets have been met.

Bergasse said the Chamber of Commerce supported the implementation of VAT from the beginning and was a part of the government’s pre-implementation VAT team.

Bergasse pointed to the need for proper consultations ahead of the implementation of VAT.

But he recognized that making VAT understandable to a cross-section of people is “very difficult”.

“I will warrant that there are still business people in St. Lucia who still do not understand VAT,” Bergasse said.

“...It is a bit of a complicated tax, so it does take people a while to wrap their heads around it and it does make a difference the way your legislation is structured.  We didn’t get the legislation until very late in the day and even after we got the legislation there are the regulations that go along with it that are very important, because the legislation is the ‘what’; the regulations are the ‘how’.”

He noted that the fundamental change created by VAT is that the business community is changed from being solely taxpayers to being tax collectors.

When properly structured, VAT is a tax on consumption, not business.

In The Bahamas, the proposed VAT legislation and regulations have not yet been released to the public, so the specifics are still unknown.

The government, meanwhile, is planning on increasing public education and awareness in a series of meetings set to begin this week.

Prime Minister Perry Christie has said the July 1 implementation date is not set in stone and he, as minister of finance, needs to be satisfied that businesses and the country at large are ready for the implementation of VAT.

As the government prepares to intensify public education on VAT, it is hoping to quiet what appears to be growing public sentiment against VAT.

November 13, 2013

thenassauguardian

Caribbean Blog International

Father Sebastian Campbell says: Be real with the numbers business ...It is here to stay ...Effectively tax the number houses

 Priest: Tax Web Shops

  by Rogan Smith




A leading clergyman is suggesting the government tax the illegal number houses as a way of generating revenue and offsetting the impending value added tax (VAT).

The government has announced plans to introduce VAT on July 1, 2014 as a means of broadening the country’s tax base.

The Bahamas will apply a 15 per cent VAT to a broad range of goods and services.

In the past, many Bahamians have suggested the government tax the web shops, which are raking in millions of dollars annually.

“Be real with the numbers business. It is here to stay. Effectively tax the number houses,” said Father Sebastian Campbell, rector at St. Gregory’s Anglican Church.

“Research has already shown that this is an oasis of wealth sitting in our midst. Governments sometimes must make hard and unpopular decisions for the good of the country; go for it. It is common knowledge that many involved in the numbers business voted against the referendum in January. By so doing they guarantee greater gains for themselves.”

In January, the Christie administration held a referendum to give Bahamians an a chance to vote to regularise the numbers industry.

The majority of Bahamians rejected the referendum. A legal battle has ensued since then with the government taking steps to shut down the numbers racket and the attorneys for the web shop operators attempting to keep it open.

“In January, please be honest and admit, we had an opinion poll, it was loaded with flaws. I urge the government to do the most appropriate thing, lead. The resource is here; let’s tax it for the common good. As parliament goes into the debate of gaming now is the time to level the playing field. Do not give away rights to foreigners that Bahamians don’t have in their own country,” he said.

“This is a hot button topic; it is not prudent to do it near an election, therefore now is the time. We have no luxury in waiting for this one. By 2017 Bahamians would have experienced the results and government would have had time to tweak and show the public the benefit of the new regime.”

Father Campbell said The Bahamas’ financial system must be overhauled, as is it is “totally inadequate and not real to the times.”

In fact, he said it is “miraculous” that Bahamians have survived so long without radically overhauling its tax structure.

He also suggested the government make improvements in the area of tax collection. Millions of dollars, he said, are alleged to be outstanding.

“We must confess our failure to successfully achieve maximum results in tax collection. VAT, mind you, is said not to be a progressive form of taxation, I am no tax expert, but I’ve heard the cry from friends in the region that have it,” he said.

“Income tax is said to be more progressive and will cause those who have more to carry a greater portion of the burden as opposed to a VAT, where all men will be equal in contribution. Bahamians ought to also beware that some countries in our region have both VAT and income tax. Yet remember, too, The Bahamas is an archipelago. We have to repeat maybe some 60 plus times that which regional countries might only have to do once.”

Father Campbell also called on his colleagues within the church to prepare their congregations and the nation as a whole for this reality.

“This is where leadership is warranted now in our development. It is not the duty of only the government and politicians in educating our people and to give leadership. The church must assist in leading the way and not get in the way of this necessary, progressive, albeit radical move. It might be a good gesture for government to launch its plan education programme with the church,” he said.

VAT has been implemented in 140 countries around the world.

November 06. 2013

The Bahama Journal

Caribbean Blog International

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

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

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

Tribune242

Caribbean Blog International

Peter Nygard says that the Official Opposition - Free National Movement’s (FNM) politicization of the Stem Cell Therapy Bill was “small-minded” ...and the group does not deserve to be in government

Nygard slams FNM on stem cell debate

By TRAVIS CARTWRIGHT-CARROLL
Guardian Staff Reporter
travis@nasguard.com

Controversial Lyford Cay resident Peter Nygard said earlier this week that the Free National Movement’s (FNM) politicization of the Stem Cell Therapy Bill was “small-minded” and the group does not deserve to be in government.

Nygard appeared on the More 94.9 FM radio show “Real Talk Live” with Ortland Bodie on Monday and said he was shocked when saw the issue become so politicized.

“This should never, ever be politicized,” he said.

“I am so in shock that this should ever become politicized.

“My goodness, a big issue like this should be above politics. Even people like [FNM Deputy Chairman Dr. Duane] Sands who is a key doctor in the committee.

“I think he was in shock to see this become politicized within his own party.

“This is such a disfavor for the Bahamian people, for the Bahamian nation for having an issue such as this become politicized and then doing it for the wrong reasons.

“In my mind, the people, they don’t even deserve to be in government. It’s just so small-minded.

“I actually was working on this before Prime Minister Christie with the other government. I tried to bring this forward at that time and they chose not to pay the same kind of attention to it that Prime Minister Christie did.”

Sands was a member of a government-appointed task force that reviewed the stem cell issue and presented recommendations on how the procedures could be developed in the country. Those recommendations were instrumental in the drafting of the law.

FNM Chairman Darron Cash said yesterday that the party is not surprised by Nygard’s statements.

“We simply say what else is to be expected?” he said in a statement.

“He knows that he will always be clothed in the protection and comfort of the prime minister.”

He added: “One day soon there will be a new sheriff in town.”

FNM Leader Dr. Hubert Minnis blasted the government for “rushing” stem cell legislation through Parliament during debate on the bill in July.

The party later suggested that the government was pushing the law as a payback to Nygard, an assertion the government denied.

Nygard told reporters in July that he had no personal self-serving interests in the government passing the Stem Cell Bill.

However, in a recent YouTube video Nygard claimed that he “initiated and helped to write the stem cell legislation” which was eventually passed.

Parliament passed the Stem Cell Therapy Bill in August.

Health Minister Dr. Perry Gomez said the law would place strict limitations on the practice to prevent human reproduction.

A scientific review committee and an ethics committee are to police the sector.

October 31, 2013

thenassauguardian

Caribbean Blog International

The Bahamas is one of three Caribbean nations that lead in improving the region’s business climate

World Bank: Bahamas Improving Region’s Business Climate

by Rogan Smith

The Bahamas is one of three Caribbean countries in the lead when it comes to improving the region’s business climate, according to a new World Bank report.

The ‘Doing Business 2014: Understanding Regulations for Small and Medium-Size Enterprises’ report was released Tuesday.

The Washington-based financial institution said this country, along with Jamaica and Trinidad and Tobago took steps to improve their business regulatory environment over the past year.

The report said The Bahamas made transferring property easier by reducing its stamp duty.

It also noted that The Bahamas enhanced its insolvency process by implementing rules for the remuneration of liquidators, allowing voluntary liquidations and outlining clawback provisions for suspect transactions.

However, Jamaica led the way in the Caribbean by adopting new legislation for private credit bureaus, reducing the corporate income tax rate and streamlining procedures for starting a new business.

The report acknowledged Trinidad & Tobago’s efforts to lower the cost of connecting to the power supply.

The Bahama Journal

Caribbean Blog International

Gaming and financial regulations in The Bahamas

Bahamas ‘10 to 15 years’ ahead of curve on casino gaming

Director of UK institute focused on financial crime suggests need to address illegal gaming




By ALISON LOWE
Guardian Business Editor
alison@nasguard.com

The Bahamas is “10 to 15 years ahead of the curve” in the region with respect to legal gaming and associated regulation, but will likely have to very soon consider the implications of illegal gaming in the “web shop” industry if it is to avoid the “very painful downsides” of unregulated gambling, an international gaming and financial crime regulation specialist has warned.

 

Kleo Pappas, director of the International Governance and Risk Institute, told Guardian Business that he expects that illegal gaming is a topic that will arise during the forthcoming “Bahamas Gaming Forum: Fostering Growth, Transparency and Social Responsibility”, which the institute is hosting at Atlantis resort next week.

 

A UK-based entity that specializes in organizing and running financial crime prevention training programs, consultations and gaming regulation seminars, the International Governance and Risk Institute’s forum will bring together regional officials and firms navigating the challenges of managing gaming regulation in an environment of evolving technology, while remaining competitive.

 

Among those expected to attend from throughout the region, the U.S., Canada and Australia are casino managers, money laundering reporting officers, gaming regulators, law enforcement officers, compliance officers and international firms seeking access to emerging markets for gaming.

 

The event will be opened by Minister of Tourism Obie Wilchcombe and Prime Minister Perry Christie, and will see speakers focus on issues such as the growth and regulation of Caribbean gaming, anti-money laundering, essentials of gaming law, customer due diligence for online gaming and “cheat intelligence”.

 

Pappas said that recently-tabled legislation in The Bahamas which would allow mobile gaming on resort campuses throughout The Bahamas certainly raises interesting new questions for regulators who might seek to ensure this type of activity is being managed in a responsible and legal manner.

 

“Without a doubt, because having mobile gaming is gambling remotely [it raises new challenges]. You’re not going to a resort, you’re not snapped on a camera or anything like that. And socially - and I don’t really know because I haven’t been immersed in this country’s regulations - I am not sure how they will effectively limit that to on-campus.

 

“If you are on the side of the fence that doesn’t want gaming to become prevalent, there is the question of how those on the other side of the fence may view (mobile gaming) as the thin end of the wedge.”

 

Pappas said that The Bahamas is a model for other jurisdictions that may be interested in pursuing gaming to a greater degree, but indicated that the jurisdiction may eventually have some catching up to do with respect to dealing with the “numbers” sector.

 

“I think for The Bahamas what you have going for you though is that you are in a place where a lot of jurisdictions are going to be in 10 to 15 years from now.

 

“You are further along this evolution of gaming and financial regulations; your financial intelligence unit is very well run and organized. There are fail-safe measures in place for the financial services industry which wouldn’t take a lot of effort to modify them for the gaming sector.

 

“But if this is something that is happening illegally, I don’t think it’s going to be a very long time before they have to look at it. And by all means look at something like they have in the UK, put the emphasis very much on the gaming operators to put money into a pot to make sure there is a social awareness, that people realize the very painful downside to gaming that is done to excess,” said Pappas.

 

He compared unregulated gaming to Prohibition in the U.S., and told Guardian Business that he expects the topic to come up at the forthcoming forum.

 

“We’re going to have one or two debates I’m sure and panel sessions, and if it doesn’t get raised I’m going to raise it,. The parallels are very similar to the Voldstead Act - the prohibition of alcohol for that famous 10-12 year period in the U.S. where they decided they would have the ‘sober society’ and concentrate on what was important.

 

“The church was very much behind that, and what was the result? People drank astonishing amounts of booze, huge amounts of money was spent on it, and you had this gangster class of people that rose up. The elicit gaming that happens here, you are not alone in that, Trinidad and Tobago has the same issue.

“They don’t have a regulator because they don’t want to be seen to regulate something that is illegal, but they realize that the writing is on the wall, the end is nigh and they are at the point where they either take the plunge and legalize it or stamp it out somehow.”

The Bahamas Gaming Forum will take place from October 28 - 30 at Atlantis resort.

October 25, 2013

thenassauguardian

CaribbeanBlog International

The Bahamas Government’s focus on Value-Added Tax’s (VAT) ‘medium-term benefits’ is “a farce” ...says Rick Lowe of the Nassau Institute

Gov'ts Medium Term Vat Focus 'A Farce'

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

 

The Government’s focus on Value-Added Tax’s (VAT) ‘medium-term benefits’ was yesterday described as “a farce”, with the private sector and consumers more concerned with what happens on July 1, 2014.

 

Rick Lowe, an executive with the Nassau Institute think-tank, which produced a study showing VAT would have a highly negative impact on the Bahamian economy, said businesses were more concerned about the immediate, near-term effects of tax reform.

 

He was responding to John Rolle, the Ministry of Finance’s financial secretary, who told Tribune Business yesterday that the initial results from an Inter-American Development Bank (IDB) study showed that VAT would positively impact jobs and growth, and reduce inflation, in the ‘medium term’.

 

While Mr Rolle did not define that latter term, Mr Lowe said that in economic terms it usually referred to a duration of five-10 years.

 

He added that this ‘longer term’ outlook also failed to account for the likely immediate inflationary impact of VAT, especially on services, which accounts for 70 per cent of the Bahamian economy.

 

“I think it’s a bit of a farce to say what’s going to happen in the medium term,” Mr Lowe said of the Financial Secretary’s comments.

 

“We’re concerned with what’s going to happen the day it’s implemented, the near and immediate term. What about all these countries where it’s caused increased unemployment, the government to lose revenue, all sorts of economic dislocation?

 

“Why are you talking about what’s going to happen in the medium term, five-10 years away?”

 

Mr Rolle said the IDB study has shown that VAT will have a “positive” impact on the Bahamian economy’s growth and employment prospects in the medium-term.

 

He added that despite the IDB study being incomplete, the ‘preliminary results’ showed the Government’s tax reform centrepiece would also result in reduced inflationary pressures.

 

“While the IDB study is ongoing, we have seen the preliminary results, which attest to the projected positive economic impact of the fiscal reforms (growth and employment over the medium term), and to the reduced inflationary pressures to which the budgetary consolidation would contribute,” Mr Rolle told Tribune Business.

 

“Additional historical data is being added to the economic model, which will allow the researchers to fine-tune their results. Afterwards the results of the study will be published.”

 

Yet Mr Lowe suggested the fact Mr Rolle did not comment on VAT’s immediate impact was telling.

 

“I keep saying to people: ‘Watch the language, watch what they don’t say’. That’s critical. They’re masters at it. It’s quite frustrating, honestly,” he told Tribune Business.

 

“It’s very unfair to the Bahamian citizen, the Bahamian taxpayer. They don’t talk about the immediate cost of living increases that are going to happen.”

 

The IDB used its October quarterly bulletin on the Caribbean to confirm it is working with the Government on implementing VAT in the Bahamas. It said its study on the new tax’s impact on the economy and wider society was only “underway”.

 

“The IDB has been working with the Government of the Bahamas to assist with Value-Added Tax (VAT) implementation,” the Bank’s October missive said.

 

“Using an econometric model, the IDB has provided specific input on the effects of the changes in revenue of the proposed VAT rates and the base on which the VAT will be charged.

 

“An economic impact study that assesses the effect on prices, economic growth, poverty and income distribution is currently underway. Consultations on the creation of the Central Revenue Agency, which will administer the VAT and select the IT system, are currently underway.”

 

October 22, 2013

 

Tribune 242

 

Caribbean Blog International