The proposed Value Added Tax (VAT) could deteriorate The Bahamas’ economy

Moree Says Gov’t Should Consider Payroll Tax–Attorney says VAT could destroy economy

by Korvell Pyfrom
Jones Bahamas:



A payroll tax would be a better solution for the country at this point, suggested Attorney and former Chairman of the Public Service Commission (PSC) Brian Moree, Queen’s Counsel, who warned that the proposed Value Added Tax (VAT) could deteriorate the country’s economy.

Mr. Moree, who appeared on Jones and Company Sunday, said VAT will affect the cost of living in The Bahamas significantly.

“Depending on your view of VAT, it is not going to grow the economy,” he said. “It is going to cause significant deterioration of the economy because even the proponents of VAT and the policy makers will tell you that is going to create what they euphemistically call a one-time cost of living adjustment – they say of about nine per cent – some people say it could be as high as 12 per cent and some people say it may be as low as seven per cent. But what is common ground is that is going to have an immediate impact of an increase in the cost of living somewhere between seven per cent and 12 per cent.”

Mr. Moree acknowledged that the government needs to raise revenue, reduce its deficits, grow the economy and reform the tax structure, but he said VAT is not its only option to pursue these things.

He suggested that the government consider capital gains tax, sales, tax, income tax, but he said a payroll tax seems to be the best alternative.

“It’s just a question of deciding what will have the most negative effect on the economy at this time and what could reasonably be implemented in the economy of The Bahamas where we have no culture of paying taxes in terms of record-keeping, reporting, enforcement and compliance,” he said. “Many business people today are really concerned whether they are going to be capable of keeping the books and records that are going to be necessary in order for them to administer VAT.”

The government intends to implement VAT at rate of 15 per cent on July 1, 2014.

Many business leaders have raised concern about its implementation with Super Value food stores President Rupert Roberts warning that it could lead to a customer revolt.

Financial Services Minister Ryan Pinder recently suggested that regularising the gaming industry could delay VAT’s implementation and reduce the rate at which Bahamians will be taxed.

March 03, 2014

The Bahama Journal

The looming introduction of value added-tax (VAT) and investors’ perceptions of the tax in The Bahamas

VAT creating ‘a lot of uncertainty’ for investors

But Bahamas still viewed as less risky investment than most regional peers

By Guardian Business Editor
alison@nasguard.com

Arguing that the looming introduction of value added-tax (VAT) is generating a “lot of uncertainty”, a KPMG valuation expert suggested that this is one of the “major risk factors” that is determining investors’ perceptions of The Bahamas at the moment.

Shana Lee, associate director of valuation services for KPMG Advisory Caribbean Ltd., was addressing the Chartered Financial Analyst (CFA) Society luncheon at Luciano’s of Chicago restaurant yesterday, on the topic of adjusting for country risk in business valuations.

Asked by CFA Society President Andrew Strachan what he sees as the major risk factors affecting The Bahamas’ sovereign rating over the medium term, a factor which goes into determining the country risk premium that forms part of a business valuation, Lee said: “One would be the sovereign debt level and two, there’s a lot of uncertainty with the potential introduction of VAT. So if you are an investor coming in now VAT is definitely going to impact the returns you’ll see, so it’s something you have to factor in.”

However, Lee described the quantification of the potential impact of VAT as “really tricky”.

“Its hard to say, I think it’s just going to come down to investors seeing that there’s uncertainty at this point and trying to factor that in,” she said.

Notwithstanding this uncertainty, Lee said that there has been a slight “uptick” in demand for valuation services in The Bahamas of late.

“There is activity. You see activity potentially with family businesses that are looking at succession plans and need to know the value of their companies for that. There are companies that may be looking at transactions and are evaluating what the potential price they may be looking at is. Valuations come up in terms of financial reporting, if you have goodwill on your books you need to value and test that goodwill every year so that comes up that way. There is work, though the M&A (mergers and acquisitions) market is a little bit slow right now, so there’s certainly room for growth,” said Lee.

The valuation expert explained that generally speaking valuations look at potential political, economic and liquidity risks in a given country, as investors want to know what risks are involved across a range of areas in a country where an acquisition or investment may be set to take place, in order to get an appreciation for what types of returns they should expect should they invest.

However, she added that due to a lack of data availability in some countries – a factor in The Bahamas, she noted, due to the small size of the capital market – models have been created which use a country with good data as a benchmark and which then attempt to adjust for the incremental difference in the risk between that country and the country where the valuation is taking place.

This provides a “basic” but not fail-proof country risk premium which can be utilized by investors to determine whether or not they will pursue an investment, and at what cost.

In addition to this basic assessment, a more complex assessment of country risk is sometimes undertaken which takes into consideration other factors.

Out of nine countries listed in the Caribbean, The Bahamas was ranked roughly equally with Trinidad and Tobago in terms of its country risk premium for investors, behind the Cayman Islands and Bermuda, but ahead of Barbados, Dominican Republic, Suriname, Jamaica and Cuba.

The Bahamas country risk premium, based on the various models, tended to hover below five percent, while for countries such as Jamaica the risk premium is in the region of between eight and 18

percent, while Cuba’s risk premium went as high as 28 percent depending on which model was used.

The relatively high ranking of this country in the region points to how notwithstanding risk factors and the fear of uncertainty generated by VAT, The Bahamas is still view largely positively in comparison to its peers by investors and advisory firms.

In an interview with Guardian Business, Lee suggested it does appear that the government is taking some steps to ensure that its country risk premium remains lower – and therefore its attractiveness to investors, higher – than many of its regional peers.

“I guess the government is trying to take measures to address the sovereign debt level and hopefully the uncertainty relating to taxes would be resolved in coming months. So hopefully both of those things would be resolved. Similarly there are other factors that come into play like tourism and crime, so to the extent that the government is able to address those issues it would also help.”

Lee said that among the key factors determining The Bahamas’ country risk premium is perception.

“It comes down to country credit ratings, two of the three primary models to determine country risk are both based on credit ratings, and even the country risk rating model it’s based on investor perceptions of the riskiness of investing in The Bahamas, so it really comes down to investors and others’ perceptions of risk,” she said.

February 28, 2014

thenassauguardian

Value Added Tax (VAT) is unfair, untimely, unreasonable and undesirable ... says Democratic National Alliance (DNA) leader, Branville McCartney

Vat Is 'Unfair, Untimely And Unreasonable' - Dna

Tribune242:


DNA leader Branville McCartney continued his push for the government to rethink the introduction of Value Added Tax (VAT), calling it an “unfair, untimely, and unreasonable” burden to place on the backs of Bahamians.

Noting that in September 2012, five months prior to the failed gambling poll, Minister of State for Finance Michael Halkitis, in response to the sovereign credit downgrade by Standard & Poor, indicated that the Government was planning to release its Tax Reform White Paper for public consultation “next month” (October 2012), Mr McCartney said it is clear from all indications that the idea of introducing VAT was well in play prior to January 2013.

“The Prime Minister confirmed this during the mid-term budget debate in February 2013 saying; ‘The Government is implementing a broad tax reform package that includes the introduction of a Value Added Tax (VAT) in July 2014. While that is an ambitious timeframe, I would note that we have had the benefit of detailed studies of the feasibility of VAT in The Bahamas’.”

Mr McCarntey added: “Mr Christie in the House of Assembly continued: ‘The White Paper (which was completed in September 2012) contains a fully articulated policy framework for VAT. Following the public consultation process, the Government will present a refined proposal, and advanced legislation to bring VAT into effect’. We are gravely concerned about Mr Christie who recently suggested to Parliament and the nation that the Prime Minister had high level talks with the Minister of Finance on the VAT issue.

“At this meeting the Prime Minister confirmed that the Minister of Finance, who apparently does not listen to the Prime Minister, was moving ahead on VAT and for this reason he (the Prime Minister) left him (the Minister of Finance) at home and would only let the Prime Minister speak.”

With these comments in mind, Mr McCartney said the public needs to worry that Mr Christie’s views are “schizophrenic” on this issue as he appears to be blaming “his alter ego for VAT”.

“Mr Michael Halkitis, the Minister of State for Finance, stated earlier this year that, apart from the imposition of Value Added Tax (VAT), the Bahamas has no other viable option to spark the required streams of revenue it needs to arrest government debt.

“However, Prime Minister Christie, speaking either as Prime Minister or one of his alter egos, stated that if anyone in the public sector has a better idea he is ready to listen. Numerous local and foreign consultancy groups later, we in the Democratic National Alliance ask, is this the same Christie who in 2013 rejected the Nassau Institute commissioned independent research study of ‘The Potential Impact of VAT for our country’ by Mr David Godsell accusing him of ‘distorting the truth’, and dismissed the DNA’s ideas as ‘nonsense’?

“Our country has not rebounded from the most devastating recession we have ever had and in light of the pending introduction of Value Added Tax we in the DNA are left to wonder if this current government truly cares about Bahamians. It cannot be fair for struggling hard working citizens of the Bahamas trying to make ends meet to now be faced with the fear of not being able to afford the basic survival items because of VAT. Moreover, the people of the Bahamas must be reminded that this government campaigned on putting people back to work and instead they now propose to put extra taxes on their backs,” he said.

At this time, the DNA leader noted, VAT is unfair, untimely, unreasonable and undesirable.

He said: “Mr Prime Minister there are alternatives… you just need to listen. Bahamians are living in a state of fear. Fear of crime, fear of increasing financial insecurity, and now, fear of VAT. There is no clear vision in sight from this group of merry men in the PLP. Their leader has been late, inconsistent and out of touch with the issues that face Bahamians daily.

“Our country is at a critical crossroad and demands that we make the tough decisions to lead our country to prosperity. We need strong dynamic leadership with a clear vision for our country. We need leadership that is not afraid to lead.”

February 24, 2014

Tribune 242

...Value added tax (VAT) is an inappropriate tax for a tourism-based economy

Value added-tax ‘anti-tourism’

Central Bank of Barbados chief says VAT system ‘a mess’ there and urges government to replace it with sales tax

By ALISON LOWE
Guardian Business Editor
alison@nasguard.com

BARBADOS – Claiming he has seen “declining enthusiasm” for the tax over the years in his own country, the governor of the Central Bank of Barbados has called value-added tax (VAT) an “anti-tourism” tax which has hurt its local industry and which he is lobbying to see removed there.

In an exclusive interview with Guardian Business on VAT and its effects, Governor of the Central Bank of Barbados Dr. Delisle Worrell, who has held the post since 2009, said that VAT is “horribly complicated” to administer and called Barbados’s own VAT system “a mess”. Worrell said that in his view a “simple sales tax” would be a far preferable means of revenue generation for the Barbadian government.

Admitting that his position on the tax is considered “very radical” among his colleagues and does not necessarily represent that of the bank as an institution, Worrell said that he has been opposed to the tax in Barbados since its inception.

The government of Barbados introduced VAT at a rate of 15 percent in 2010; it was later increased to 17.5 percent in 2010 for what the government at the time said would be a period of 18 months and has remained at that level since.

The economist, who has recently concluded a study on VAT for the Central Bank, said: “I take a very radical stance on VAT. I think VAT is an inappropriate tax for a tourism-based economy. The rationale for VAT is that it is an export promoting tax, because if you are exporting physical goods (VAT is not charged on) those goods, but the producers are able to claim refunds/rebates on their inputs.

“They are ‘vattable’ goods but because their sales are external you’re not going to charge VAT on the exports, only on the domestic sales. So if they are a sugar producer they will pay VAT on local sales but anything they export they won’t pay any vat on, but they will claim a rebate on all of their inputs. So there’s a bias in the VAT in favor of export industries; that is if you are exporting physical things that are consumed outside, but not if you are exporting tourism, because the tourists come to you to consume.

“So VAT is an anti-tourism tax if you are a tourism producer because it makes your tourism more expensive than the people who don’t charge VAT, and that’s why all tourism countries who apply VAT have to apply it at a lower rate. A simple sales tax would be much better.”

Barbados applied a 7.5 percent rate of VAT to its tourism sector when it implemented VAT in 1997. This was later increased to 8.75 percent when the general rate rose to 17.5 percent, but as is proposed in The Bahamas, the lower rate was only applied to room-related transactions, and other tourism services such as restaurants on the hotel property, tours, activities, car and boat rentals, for example, remained subject to the full rate of VAT.

Worrell suggested that a sales tax, something a number of Bahamian business owners and operators, most prominently Rupert Roberts, President of Super Value, have proposed, “a more efficient way to raise the same level of revenue” for the government of Barbados, or The Bahamas.

Confirming the fears expressed by a number of Bahamians regarding the administration of VAT, Worrell said it “puts a tremendous burden on government administrations” and businesses.

“It’s a very complicated tax, especially if you are selling services - what are your inputs? If I am making a cell phone I know I need silicon, I know I need different materials and so on so I can inventory the materials I’ve brought in and say for each cell phone I need X amount of these materials, it’s clear. But if I am an engineer and I am supplying engineering services, what are my inputs? And so it becomes horribly complicated,” he told Guardian Business.

With reference to the refunding of excess VAT paid to the government, the Governor confirmed that the government has not managed to pay these sums back to businesses in a timely fashion, despite interest being owed by the government to the business if it takes more than six months to pay the refund after it is owed.

“They are in arrears on refunds and they are also a known quantity of refund claims that are outstanding, and there are cases where the companies have claimed the refund and the VAT office has not necessarily accepted those,” he added.

On the plus side, Worrell said that VAT has been successful at raising revenue for the government. In a recent study, titled “A Review of the VAT system in Barbados” Worrell and his three co-authors at the Central Bank said there was “some gain” in revenue yield relative to the tax rate with the establishment of VAT in Barbados, but the administrative costs of collecting the VAT were higher relative to the revenue received than for the taxes they replaced.

Finding that VAT has been “less elastic and less buoyant” in response to changes in income than its predecessor taxes, the authors said that this indicated the need for “greater compliance” with the tax in Barbados, noting that the VAT division of the government could benefit from employing additional staff.

Asked yesterday if the Central Bank of Barbados is therefore recommending that the government of Barbados do away with VAT as a source of revenue, Worrell said: “Not the Central Bank - me.” He added that the government is not officially considering removing VAT.

February 21, 2014

thenassauguardian

Value Added Tax (VAT) is viable in The Bahamas

“VAT is Viable,” says Leading Auditor, Calls VAT ‘Most Equitable, Transparent’

Kendrick Christie, President of the Association of Certified Fraud Examiners Bahamas Chapter asserted that “Value Added Tax (VAT) is viable in The Bahamas.”

“Business owners must be responsible with the information they purport as facts,” says Christie. “A lot of what I am hearing is at best anecdotal. The reality is the government is being prudent by aggressively tackling tax reform as the current tax system, led by customs duties experience high levels of leakage,” Mr. Christie explained. “VAT allows for enhanced checking ability for internal and external auditing and analysis that can be useful in business strategy.”

Mr. Christie’s comments come as the Bahamas debt is expected to reach just over $5 billion by June 30.

“The accounting profession has been conducting training for its members and the public for almost a year to ensure individuals are fully prepared for the transition to VAT,” Mr. Christie replied when asked about how prepared his industry is for VAT’s implementation.

“There will be opposition to any increase in taxes at any point in time,” Christie added.  “The truth is that to avoid downgrading of our fiscal and monetary position, the government must act. The government may feel that they are in a Catch 22, however, the decision is clear – a new tax system is needed and one of the most equitable and transparent is VAT.”

Mr. Christie complimented the government on its outreach to the different sectors of the business community. “It appears to be a multi-step educational process which started with the business community. I now note the consultation with consumers and I urge them (consumers) to prepare, ” he said , noting he expects the educational campaign to increase once the Value Added Tax Bill and Regulations are passed through Parliament.

VAT, since its introduction, has been the most successful fiscal tool worldwide for revenue generation.  No other taxation system has been adopted more rapidly than VAT and it has become the mainstay of national finances for developed and developing countries.

Bahamas.gov.bs

Value Added Tax (VAT) and the Bahamian economy

Imf Not Forcing Vat On Bahamas

Tribune242:



The Bahamas’ decision to implement Value-Added Tax (VAT) did not result from the International Monetary Fund (IMF) holding a gun to the Government’s head, a key Ministry of Finance consultant says.

 

Ishmael Lightbourne, former senior partner at PricewaterhouseCoopers (PwC) Bahmas, told dozens gathered at Evangelistic Temple that VAT is just one of many remedies to get the Bahamian economy back on track, given that the national debt has skyrocketed over the past 20 years.

 

The former World Bank director said the Bahamas’ fiscal deficit is five times greater than what it was in 1993. What started out as borrowing to finance capital spending on infrastructure – roads, hospitals and utility plants – has evolved into borrowing for everything from operating public corporations to paying civil service salaries.

 

“If the IMF were in the position to force us to do anything, they would have done so 20 years ago,” Mr Lightbourne said. “There is a great deal of misunderstanding about that. The IMF has made no threats, and does not - and cannot - seek to impose their will on a sovereign government.”

 

He said VAT is the Government’s effort to balance out the unsustainable inequity between what the country brings in as revenue and what it spends.

 

“Governments,” Mr Lightbourne said, “have for the past two decades tried to fill the vacuum left by policies that once allowed foreign investors and developers to build without putting in their own capital investment in roads, utilities, parks and more.

 

“Succeeding governments were left to foot the bill, but expenses were greater than revenue under an increasingly outdated tax system of heavy reliance on Customs duties.”

 

“For the past 20 years, in the absence of major private sector investment, this is what we have done,” he added. “As a result, our debt has more than doubled and growth has been stagnant. So today we can no longer be inactive.”

 

The Government’s series of consultations on VAT continue this month at Government High School on February 19 at 11am; AF Adderley High School on February 19 at 9:30 am; SC McPherson High School on February 20 at 10am; the Bahamas Human Resources Association on February 20 at 11:40 am; Alexiou Knowles & Co. on February 21 at 8:30 am; and BEC on February 21 at 11:30 am.

 

For more information on the VAT implementation, call the Ministry of Finance VAT hotline between 9am and 5pm, Monday-Friday, at 225-7280. Persons can also visit the official Facebook

page at www.facebook.com/vatbah242.

 

February 18, 2014

 

Tribune 242

We do not support value added tax (VAT)

Some Family Is. residents “clueless” about VAT

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

With fewer than five months before the implementation of value-added tax (VAT), several residents on two Family Islands said they have been left in the dark about the planned tax.

Iris Charlton, an English teacher at Abraham's Bay High School and a member of the Coalition for a Better Mayaguana, said many residents are “really afraid” that VAT will significantly reduce their standard of living.

Noting the high cost of living, and “exorbitant” charges on mail boat services, which bring food and other supplies to the island, Charlton said, “As a result, the things that customers have to buy in the local convenient stores are really, really high.

“It is tough. We do not support VAT.

“We do not see how it is going to work for us because we are struggling already.”

The government has said it will introduce VAT at a rate of 15 percent in most cases and 10 percent for the hotel sector.

Huel Williamson, a retiree, said the majority of residents are struggling to get by and many of them are unemployed.

Mayaguana has fewer than 300 residents, according to the Department of Statistics.

It is unclear what the unemployment rate is on the island.

“The economic situation here in Mayaguana is stagnant, very stagnant,” Williamson said.

“The I-Group wants to employ approximately 80 people, but right now they have a very limited number of people [on the project].”

According to I-Group officials, around 30 Bahamians are employed on the airport redevelopment project.

Asked whether residents have been adequately informed about VAT, Charlton said, “The way they had the forums for the (gambling) referendum, and the constitutional forums, something like that is needed...because a lot of people are clueless.”

Williamson said residents have been expecting government officials to visit the island to explain VAT, but that has not happened as yet.

Johnie-Mae Colebrooke, a mother of two and business owner in Andros, also expressed concern about VAT.  She said many residents are challenged to provide for their families.

“I feel very bad because I am a business woman, me and my husband George Colebrooke,” she said.

“We are praying for something to move in Andros where everyone can work because we have a lot of bills and there are no jobs.”

Minister of State for Finance Michael Halkitis said the government will cover all Family Islands before July 1, having already visited Grand Bahama, Abaco and Andros.

Mount Moriah MP Arnold Forbes said in a recent interview that on average nine out of every 10 people in his New Providence constituency do not understand VAT.

He said the government must get its education campaign to the “grassroots people”, something government officials have said they are in the process of doing.

“We will have the business owners who will have their say, but it is really the regular guy on the street, who is in the majority, that I believe we need to educate them on this in a major way,” Forbes said.

On Wednesday, Prime Minister Perry Christie said he can still be persuaded by the private sector to introduce an alternative tax model if it proves to be viable.

Christie also said the Ministry of Finance is in an “advanced” stage of preparation for VAT and is moving ahead with its implementation.

February 17, 2014

thenassauguardian