The low rate/ few exemptions value-added tax (VAT) model

U.S. study looked at VAT with ‘attendant tax cuts’

By ALISON LOWE
Guardian Business Editor
alison@nasguard.com

A range of “attendant tax cuts” were assumed to accompany the implementation of value-added tax (VAT) when it was recommended by U.S. economists commissioned by the government to examine the best possible approach to tax reform, Guardian Business has learned.

In addition, the economists, Compass Lexecon, also supported the contention of groups such as the Coalition for Responsible Taxation and others when they recommended that the government must strengthen the existing tax system, particularly the administration of real property tax, as a key component of its overall reform plan.

In an email exchange with Guardian Business, David Kamin, an adjunct professor at New York University’s School of Law and a key participant in the formulation of the study produced by the government, discussed the objectives, assumptions and findings of the study, which the government has pointed to as further support of its plans to introduce VAT.

Kamin confirmed that the group found value-added tax (VAT) to be the preferred method of tax for The Bahamas, proposing a combination of VAT and a varying range of tax cuts in order for the government to raise a level of revenue that would not choke off economic activity.

He said: “We analyzed what revenue should be generated by the VAT in combination with related tax cuts. Here, we warned that there’s a balance between 1) the long-term revenue needs of the government and positive long-term economic impact of deficit reduction, and 2) the short-term negative impact that fiscal consolidation is likely to have on the economy.

“We then analyzed the VAT and attendant tax cuts producing 1) over two percent of GDP (like the government proposed last year); 2) 1.5 percent of GDP, and one percent of GDP.

“In striking this balance between long-term revenue needs and the short-run impact on the economy, we recommended a VAT and attendant tax cuts that would produce less revenue on net than the government had proposed last year - consistent with a VAT rate in the range of five to 10 percent (depending on the breadth of the base and size of related tax cuts). And, we further recommended that this be backed up with a fiscal rule to bolster credibility.”

On Wednesday, during the Budget Communication 2014/2015, the prime minister announced that the government is planning to implement VAT on January 1, 2015, at a rate of 7.5 percent, with “much fewer exemptions” than initially proposed, and no “wide-scale duty reductions”.

The decision to offer fewer exemptions has won applause from the business community, who felt it would make administration of the VAT more simple, as suggested by New Zealand experts Don Brash and John Shewan, but the announcement that there will be few duty reductions has been more controversial.

Coalition co-chair Gowon Bowe has argued that findings of the study commissioned by the private sector grouping suggest there will not be a “radical” price spike under a VAT with few duty reductions, while some retailers and the president of the Bahamas Contractors Association fear a major knock to consumer demand from the plan.

As to what duty reductions were assumed under a VAT with 7.5 percent if the revenue target was to be achieved, Kamin said: “We were not asked to calculate (and didn’t calculate) the duty reductions that would be consistent with our recommended net revenue target for a VAT with a 7.5 percent rate. Since both the potential breadth of the VAT tax base and the duty reductions were shifting as our report was developed, we focused our recommendations on the net revenue that we believed appropriate.”

When selecting VAT as the preferred method of taxation for The Bahamas, Kamin noted that what is involved in administering a VAT, as opposed to other taxes, was of particular relevance to the consultants. Kamin is a specialist in tax law and policy; he served as adviser, to Peter Orszag, director of the U.S. Office of Management and Budget, and helped to formulate policy for President Obama’s first two budgets.

“The study considered whether the current tax system in The Bahamas was in need of reform, concluding that it is and that a VAT should be adopted in light of The Bahamas’ significant revenue needs, the expectations of the markets and the current relatively narrow and inefficient tax base,” he said.

“In arriving at this conclusion, we looked at a number of different alternatives, including payroll taxes, corporate income taxes, individual income taxes and the VAT. Based on what is known of these different tax systems, we concluded that a VAT is superior in terms of efficiency and, especially, administrability as compared to these alternatives.

“We also recommended that The Bahamas endeavor to strengthen parts of its existing tax system, like the property tax. To be clear, this analysis considered the effects of these taxes in terms of efficiency, fairness and administrability.”

Prime Minister Perry Christie spoke of the Compass Lexecon report during his presentation on the Budget 2014/2015 last Wednesday. He noted the group’s favoring of the VAT, as well as how the study also concluded that the government implement a fiscal rule to bolster its “credibility” in the budgeting process. However, Christie said that the government determined that such a rule, which would require the government to legislate a maximum debt to GDP and minimum annual level of reduction in the debt to GDP ratio removed a level of “adaptability” that the government sees as important to its ability to make financial decisions going forward.

Meanwhile, contacted for comment on the government’s proposed tax plan, New Zealand tax expert Don Brash said that he and Shewan were “very pleased” to hear that it appears that the government may have elected to pursue the “low rate/ few exemptions” VAT model they recommended during their recent visit to The Bahamas, but declined to comment on the government’s decision to do so while largely retaining duty rates at the current levels.

June 02, 2014

thenassauguardian

Cayman Islands officials and dive business operators were looking at Bimini in The Bahamas ...as an example of what not to do in pitting protection of fragile marine life ...and coral reefs against mass development

Tough Lessons: Cayman Islands Looking at Bimini for What Not to Do

A leading dive hotelier in Cayman told a local TV station there Wednesday that Cayman officials and dive business operators were looking at Bimini in The Bahamas as an example of what not to do in pitting protection of fragile marine life and coral reefs against mass development.

Keith Sahm, General Manager of the world-famous Sunset House, and a lifelong diver and master instructor, said dredging in Bimini to make way for a cruise port are taking a toll on that island’s marine resources.

“Hopefully, we can learn from others’ mistakes and we won’t have that happening here in Cayman,” he said.

Mr. Sahm’s comments came in response to the signing of a $2.5 million contract for an environmental impact analysis related to a proposed cruise berthing in Cayman where along with marine resources, the study will examine traffic flow and other issues. The dredging required, Mr. Sahm said, would kick up enough sand and silt to suffocate corals, effectively wiping out Cayman’s main attraction and triggering a ripple effect that would impact the entire economy. “Once people start coming down here not to dive because everything’s washed out, dead, the taxi service, the hotels, everything will take a huge drastic hit,” he said. The widely circulated TV interview that has been circulated over the internet and among dive enthusiasts included mention of the mammoth suction cutter dredge, the 450-foot Niccolo Machiavelli, that is plowing through waters off North Bimini now even as the legal battle continues about whether or not proper permits were granted prior to work starting.

The reference to “learning from others’ mistakes” was the latest in an onslaught of criticism of the project that some maintain is simply too large for the island. Malaysian-based Genting Corp.’s Resorts World Bimini wants the cruise port in aid in driving business to its resort and casino. The company has revealed it wants to attract as many as 500,000 guests a year, disgorging cruise passengers onto an island that now has a population of about 1,700.

Warnings about the impact of dredging to accommodate cruise ships came originally in the company’s own commissioned Environmental Impact Assessment and lately, from all over the globe.

Last week, internationally respected marine artist and scientist Dr. Guy Harvey urged caution before Bimini’s reefs that some have called among the most magnificent in the world were destroyed.

“The islands of Bimini are an environmental gem and every step should be taken to conserve these resources,” Dr. Harvey said.

World record holder and TV celebrity Neal Watson expressed deep concern last week, calling the activity “a pending catastrophic event.”

“Having started the first recreational dive operation in Bimini in 1975 and still involved in promoting diving in Bimini, I am devastated by the pending catastrophic event about to occur in this diver’s paradise,” said Watson.

“This fragile ecosystem has already suffered a degree of degradation over the past 40 years, which has occurred throughout not only the Caribbean but also the entire world. However, this dredging project will cause more irreversible damage to the reefs in the next 30 days than would normally occur over the next 30 years.

“This is not just an environmental issue but an economic issue. In addition to the three top of class dive operations located in Bimini that generate millions of dollars in revenue for the hotels, marinas, restaurants, bars and merchants, Bimini is uniquely located 48 miles from South Florida, which has the largest number of registered boats as well as the largest concentration of divers in the Continental Unites States. Because of Bimini’s proximity to South Florida and its reputation as a world class dive destination it attracts hundreds of small boats that come to Bimini to dive Bimini’s incredible reefs and support the local hotels, marinas and merchants. All of this is in jeopardy,” said Watson, who holds the world record of the deepest compressed air dive, descending to 437 feet. He once swam 66 miles underwater in 19.5 hours from the Florida Keys to Miami, never surfacing. He’s been featured in People Magazine and Outside magazine, and on TV in many shows, including Inside Edition and The Today Show.

And the dive industry’s organization, DEMA, expressed similar outrage.

“A very real concern to DEMA and to all diving businesses – especially those based in nearby Florida ­– is the fact that any environmental degradation, especially of the magnitude being described in the North Bimini Ferry Terminal Project EIA and its addendum, is likely to have a negative impact on the perception of pristine diving which Bimini now holds in the minds of diving consumers,” said California-based DEMA president Tom Ingram.

“As a result of this project, it is possible that the number of divers visiting Bimini will decline dramatically as public perception develops regarding this project’s potential environmental impact.”

Thousands have signed a petition urging the government of The Bahamas to enact a Freedom of Information Act and an Environmental Protection Act that they say, had they been in place, would have allowed public consultation before a project of this proportion was undertaken and might very well have prevented dredging that is predicted to cause irreparable damage, according to the company’s own Environmental Impact Assessment.

May 22, 2014

Save The Bays

Privy Council in London granted Bimini Blue Coalition's injunction application ...stopping dredging activities in Bimini

Privy Council Grants Injunction To Stop Dredging

By RASHAD ROLLE

Tribune Staff Reporter

rrolle@tribunemedia.net

In a stunning new development, the Privy Council in London today granted Bimini Blue Coalition's injunction application stopping dredging activities from continuing in Bimini, reversing a decision by the Bahamas Court of Appeal on Monday.

The injunction is effective immediately. As consequence, Resorts World Bimini developers cannot dredge unless and until they can persuade the Court of Appeal or the Supreme Court that the permit they have was properly granted with proper consideration by the Director of Physical Planning and that additional conditions are satisfied.

Dredging activities in Bimini began over a week ago.

May 23, 2014

Tribune 242

...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

The phone calls of people in The Bahamas is alleged to have been secretly intercepted, recorded and archived ...by the National Security Agency (NSA) ...as a part of a top-secret system which is codenamed SOMALGET

Cell Phone Tapping Claims Denied

By Jones Bahamas:

The phone calls of people in The Bahamas may have been secretly recorded as a part of a top secret United States surveillance programme, an online article alleges.

The article titled, “Data Pirates of the Caribbean: The NSA is recording every call in The Bahamas,” appears on the online site, The Intercept.

In the article, it is alleged that these calls are being secretly intercepted, recorded and archived by the National Security Agency (NSA) as a part of a top-secret system which is codenamed “SOMALGET.”

The report which cites documents provided by US contractor and whistleblower Edward Snowden, further alleges that the programme was implemented without the consent or knowledge of the Bahamian government.

“Instead, the agency appears to have used access legally obtained in cooperation with the U.S. Drug Enforcement Administration to open a backdoor to the country’s cellular telephone network, enabling it to covertly record and store the “full-take audio” of every mobile call made to, from and within The Bahamas – and to replay those calls for up to a month,” the report claimed.

According to the publication, SOMALGET, is a part of a broader NSA programme called MYSTIC, which in addition to monitoring telecommunications systems in this country, the report alleges, may also be secretly monitoring the systems of other countries such as Mexico, the Philippines and Kenya.

In fact, the report claims that MYSTIC is being used to collect data on cellular phones from a combined population of as many as 250 million people across a number of countries and it seeks to expand its access.

The report noted, “By targeting The Bahamas’ entire mobile network, the NSA is intentionally collecting and retaining intelligence on millions of people who have not been accused of any crime or terrorist activity.”

Further the report states that, “SOMALGET has been deployed in The Bahamas to locate “international narcotics traffickers and special-interest alien smugglers” – traditional law-enforcement concerns, but a far cry from derailing terror plots or intercepting weapons of mass destruction.”

But the publication also references a 2013 crime and safety report published by the U.S State Department which concludes that Americans face little to no threat of Bahamian terrorism, “war or civil unrest.”

According to the publication, THE NSA has been using MYSTIC to gather cell phone metadata in five countries since 2013 and it claims it was intercepting voice data in two of those countries.

“Documents show that the NSA has been generating intelligence reports from MYSTIC surveillance in The Bahamas, Mexico, Kenya, the Philippines, and one other country, which the publication did not name claiming this was in response “to specific, credible concerns that doing so could lead to increased violence.”

“The more expansive full-take recording capability,” it alleges, “has been deployed in both The Bahamas and the unnamed country.”

While the report noted that the NSA refused to comment on the programme, the agency did deny claims that its foreign intelligence collection was “arbitrary and unconstrained,” adding that it adheres to procedures that “protect the privacy of U.S. persons whose communications are incidentally collected.”

The Bahama Journal reached out to local national security officials for comment on this report but those calls went unanswered up to press time.

May 21, 2014

The Bahama Journal

Tom Ingram, executive director of the California-based Diving Equipment and Marketing Association (DEMA) ...said the dredging of 220,000 cubic yards of seafloor at the heart of Bimini’s pristine reef system to accommodate a resort’s cruise ship ferry ...could ruin what is a “recreational diving jewel” of The Bahamas

DEMA: Dredging could devastate Bimini’s thriving dive industry

IMPOSING – The ferry pier and terminal will project 1,000 feet off the coast of North Bimini, directly into an area containing 14 of the country’s most pristine and ecologically significant dive sites. DEMA head Tom Ingraham warned that the project could ruin Bimini’s $19 million dive industry.

Top reputation among divers could be ruined by possible environmental degradation associated with the Resorts World Bimini pier terminal project, international NGO warns

As a hotly-opposed dredging operation got underway off the coast of Bimini this week despite legal challenge, a global non-profit warned that the associated environmental degradation could destroy the island’s extremely lucrative dive industry.

Tom Ingram, executive director of the California-based Diving Equipment and Marketing Association (DEMA), said the dredging of 220,000 cubic yards of seafloor at the heart of Bimini’s pristine reef system to accommodate a resort’s cruise ship ferry could ruin what is a “recreational diving jewel” of The Bahamas.

He strongly urged the government to look carefully at the project before allowing it to move forward, even as a 450-foot mammoth dredger began to excavate the seafloor this week.

“A very real concern to DEMA and to all diving businesses – especially those based in nearby Florida ­– is the fact that any environmental degradation, especially of the magnitude being described in the North Bimini Ferry Terminal Project EIA and its addendum, is likely to have a negative impact on the perception of pristine diving which Bimini now holds in the minds of diving consumers,” Ingram said.

“As a result of this project, it is possible that the number of divers visiting Bimini will decline dramatically as public perception develops regarding this project’s potential environmental impact.”

He said it is possible that this perception – and perhaps the reality – of the environmental impact will cause Bimini and The Bahamas to trade the affluent and sustainable diving consumer population for a population of less-affluent cruise and ferry consumers, with less-well-known demographic, life stage and economic characteristics.

“Such a trade of one population for another could have devastating impacts on the number of divers visiting Bimini, with a resulting economic impact on Bahamas Dive Association (BDA) members, DEMA members and the economy of Bimini,” Ingram said.

DEMA, based in San Diego, represents the business and consumer interests of the recreational scuba and snorkel diving industries around the world. DEMA’s mission is to promote sustainable growth in safe recreational scuba diving and snorkeling while protecting the underwater environment.

Located 48 miles from Florida, Bimini has long enjoyed a reputation among American DEMA members as a pristine diving and fishing location and annually attracts more than 3,000 diving visitors to businesses which belong to the BDA, as well as more than 3,700 annual diving visitors who arrive in private vessels, Ingram noted. Together, they generate more than $19 million a year for the economy of The Bahamas.

“These diving visitors are in addition to the thousands of visitors each year who make the short journey by air or boat to fish in Bimini’s unspoiled waters. These tourists currently spend an annual average of almost $2,800 each on Bimini, including spending at diving operations, hotels, restaurants and other facilities on the island,” he said.

“There is a strong possibility that any negative environmental impact could be long term in nature. Since underwater areas close to popular dive sites are being transformed to accommodate the North Bimini Ferry Terminal, even a partial failure to create the economic benefit projected will be devastating to the long term environmental and economic survival of Bimini.

“In our opinion, the potential economic upside of this project is inadequate when compared to the great risks involved with the potential for failure of this project to create positive economic benefit, and the long-term environmental risks involved.”

May 16, 2014

Save The Bays

The government is moving ahead with a National Health Insurance (NHI) plan / universal health scheme

Gibson: Gov’t Will Meet NHI 2016 Deadline

By Korvell Pyfrom
The Bahama Journal


Despite tough scrutiny from the Opposition over its ability to implement the much touted National Health Insurance (NHI) plan, Labour and National Insurance Minister Shane Gibson yesterday assured that the government is moving ahead with establishing the universal health scheme.

However, Mr. Gibson who has repeatedly been quizzed by the press about how much the government is paying a Costa Rican based firm contracted to consult the government on the plan’s implementation, was still unable to provide any figures.

“We’re not operating in a vacuum as soon as we have all the information and we are ready to release the information we will release it,” Mr. Gibson said to reporters outside of Cabinet Tuesday. “It makes no sense to me personally, to release information bits and pieces at a time.

“As soon as we are ready to release the appropriate information through the appropriate means then we will do so, but at this time we are not going to be releasing information every time the committee meets.”

The administration has announced January 2016 as the deadline for its rollout of NHI, but earlier this week Mr. Gibson announced that elements of the plan will be implemented ahead of that date.

Free National Movement (FNM) Deputy Chairman Dr. Duane Sands is among those skeptical of the plan ever coming to fruition and recently he said that the government’s track record on meeting its deadline makes it highly unlikely that NHI will ever come to reality.

But Mr. Gibson dismissed these assertions and suggested Dr. Sands is a man desperate to be elected.

“It is very difficult for me to keep responding to an always rejected man who wants to be a politician. He is at his best when he is criticising and I’m not going to endorse or authenticate what he says by responding to it,” he said.

“As soon as he is able to be elected in parliament and the people say that we want you, I will speak to him.”

The government contracted Costa Rican based Sanigest Internacional healthcare and management consultancy firm in March to provide a costing, benefits package and payment modalities report within three months.

Health Minister Dr. Perry Gomez has announced that the report is expected to be completed in early July.

May 14, 2014

Jones Bahamas