Haitian Children Born in The Bahamas Should Get Bahamian Citizenship

Key: Haitian Descendents Born In Bahamas Should Get Citizenship

By AVA TURNQUEST

Tribune Staff Reporter

aturnquest@tribunemedia.net

PEOPLE born in the Bahamas of Haitian descent are Bahamians and should have citizenship, according to Central and South Abaco MP Edison Key.

In an interview with The Tribune, Mr Key slammed successive governments for failing to address the long-standing immigration issue that has led to the marginalisation of a large group of people as “scapegoats of labour”.

He called on the government to move quickly and humanely to address the growing problem that he feels will soon become unmanageable.

Mr Key said: “These people, particularly the people that live in the Mud and Pigeon Peas, that’s my constituency. These are people that have children born there now who are doctors, lawyers, defense force officers, police, nurses.”

“They make a contribution and I blame all the governments for the situation they have to live in. They are human just like me and you and everybody else.

“There should be a more humane approach,” he said, “you’re born in a country, you don’t have no passport, and when you’re 18 you can only apply and they don’t have to give you any consideration for citizenship. But yet you are Bahamian if you look at it by your birth certificate.”

Earlier this year, an official from the Haitian Embassy urged the government to address practices regarding the process of regularising persons of Haitian descent.

Wallenson Nobert, first secretary of Legal Affairs at the Haitian Embassy, said the “real problem” faced by the Haitian-Bahamian community in the Bahamas stems from the absence of a clear legal framework to process migrants.

In response to a panel discussion hosted by the College of the Bahamas on the complex issue of statelessness within the Bahamian context, Mr Nobert said the use of the term “stateless” to describe unregularised persons of Haitian descent was “inappropriate” given Haiti’s citizenship laws.

Instead, he said, there was an inherent “hypocrisy” in the Bahamas’ handling of citizenship that allowed for a peculiar stratification of rights, adding “either you’re a part of a country, or you’re not”.

Outside the House of Assembly on Wednesday, Mr Key said: “I think the government should look at these people and sort this situation out. Let’s say it’s 60,000 foreign women in this country in this same situation and they each have five children – that’s 300,000 people. One day, it’s going to catch up with us. We need to deal with this situation now and don’t let it get any further.”

Mr Key referred to the recent spate of fires that have negatively affected shanty town populations in Abaco.

Last year, a mother and her year-old son were killed in a fire in the Pigeon Pea area in Marsh Harbour. More than 80 homes were burned to the ground on that occasion, leaving more than 500 people homeless.

Following the December 31 fire, Deputy Prime Minister Philip “Brave” Davis told Abaco residents the government would do all that it could to ensure a situation like that did not happen again, adding that members of such communities must make certain their homes are up to standard.

Last month in another shanty town on the island, more than 70 homes were wiped out in a blaze that consumed the Sand Banks area, and which police believe was arson.

Mr Key said consideration should also be given to regularise the parents of Bahamas-born children, who have worked in the country for more than 40 years.

When asked whether or not he had a solution to the issue, Mr Key said: “I don’t really know, but I know if I was in charge of the country or Immigration I would sort this out, especially with the children, but not only that, the parents. Some of them have been here 40, 50 years. 

He added: “They’ve worked hard, they’ve helped to build every building, every house, every road. Why are we using these people that have made such a contribution and then at the end of the day say we don’t need you.”

According to Foreign Affairs Minister Fred Mitchell, senior Bahamian and Haitian government officials are in bilateral talks this week covering trade, technical co-operation and illegal migration. Negotiations in Nassau were said to have been fruitful in advancing the draft texts to be signed this summer.

June 20, 2014

Tribune 242

The one thing that is clear to me ...is that a government has five years to govern ...if the prime minister does not call early elections

The government must govern

Having watched the budget debate over the past few weeks, I was encouraged by the fact that there was some discussion which created dialogue not only amongst the parliamentarians, but also the citizenry. It was interesting to see issues such as the proposed web shop gaming regulation, value-added tax, concerns about transparency in the budget presentation, freedom of information, crime, etc., thoroughly ventilated by government and opposition parliamentarians.

Contrary to what some may think, it is healthy for parliamentarians to constructively comment on matters that may appear contentious even if the view put forward is divergent from the political party they support. What were even more interesting were the political innuendos that were generated from the rousing discourse.

I am extremely pleased as a Bahamian to see that our democracy is alive and well. We are evolving as a young, independent country to a point where the next generation is being vocal in all aspects of society. For the generations born post-independence, it should be recognized that protesting, arguments and divergent views did not just come into existence in the past few years. It was because of a generation of young people in the 1950s that was the catalyst for independence in 1973. The key issue here is that when we understand our history, the adage, “the more things change, the more they remain the same”, is so true in our little Bahamas.

Like any other developing country, The Bahamas has its fair share of challenges. It also has an electorate that expects instant solutions to all the problems. Quite frankly that forms the basis of a potentially disappointed electorate that wants things to happen, and to happen right now. Surely, that is a recipe for disaster as there has to be a methodical and deliberate approach to governance that affects solutions that will be meaningful and truly beneficial.

This is not just a theoretical view, but one grounded in reality. Regardless of what each of us thinks should be done with respect to every government decision that is made, it is our collective efforts that elected the government to do the job that they are doing and it is our responsibility to make our views known to them in a respectable and articulate manner.

We cannot justly criticize the government for decisions that are being made which will ultimately result in a better way forward for us, simply because we lack the intellectual capacity to suggest alternatives that are better than the decisions they are making.

The level of ignorance that some have with regard to good governance and informed decision making reaches a point that is higher than the all the dung the wild donkeys of Inagua can produce. The electorate has an obligation to make rational and reasonable recommendations to its members of Parliament.

It cannot be right that we elect our members of Parliament to make decisions on our behalf, criticize them, yet offer no logical set of solutions for consideration that is equal to or better than the positions they are taking.

Shared responsibility is what can occur when the citizens and the elected officials work to address the challenges and problems of a society.

While we may argue about the manner and form in which policies are implemented, the substance of the matter is equally important. Isn’t it ironic that the electorate, which enjoys the nice roads of New Providence today, is the same electorate that criticized the former administration and resoundingly voted them out of office in the 2012 elections?

Likewise the same electorate voted overwhelmingly in support of the current administration, yet many are quick to condemn the government for decisions it has made.

The one thing that is clear to me is that a government has five years to govern if the prime minister does not call early elections. If it is the case that the government has five years to govern, the electorate in all fairness must give the government a chance to govern so as to lawfully fulfill the promises as set out in their commitment on election day.

To take a critical approach before the government is able to achieve its objectives is not only illogical, but suggests that the electorate does not expect the government to fulfill its promises or it believes the government is disingenuous. Either way, it is not helpful for good governance. It should be clear that I am not advocating that we not have critical reviews and/or thoughts over decisions made or contemplated by the government. I am suggesting that we ought to be forward thinking and frank in our expectations and support of a government to govern.

In The Bahamas it is neither rational nor necessary to complain about the government when citizens do not advocate and speak to their members of Parliament. What part are you going to play in the struggles of our country? How are you going to assist the government to make a difference? If it is that you are of the view that just being opposite to every policy decision or administrative action will make for a better democracy, then that may be a role citizens may wish to take on. However, if you want to make a lasting impact by affecting policy today, ensure you communicate with members of Parliament. Citizen action is an essential component of a robust democracy.

The government was elected by the people with a clear and focused agenda. The budget debate always gives citizens and residents an opportunity to critically analyze the direction that the government intends for the country. Are there always areas of focus which can be better aligned to the needs of the country? Will the decisions taken be in our best interest? The answers to these questions are arguably subjective. Objectively, this is a little past the second year of the current administration and in spite of the various views, they must govern.

• John Carey served as a member of Parliament from 2002 to 2007.

June 20, 2014

thenassauguardian

Bahamas brain drain and stagnating economic growth

Bahamas Losing 2/3 Of 'Best And Brightest'

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Almost two-thirds of college and university-educated Bahamians have moved abroad to seek jobs in developed countries, costing this nation a sum equivalent to 4.4 per cent of annual gross domestic product (GDP).

The so-called ‘brain drain’ was highlighted in a newly-released Inter-American Development Bank (IDB) report, which noted that 61 per cent of tertiary-educated Bahamians had left this nation for jobs in Organisation for Economic Co-Operation and Development (OECD) member countries.

The study, ‘Is there a Caribbean Sclerosis’, which attempts to determine why economic growth in the Bahamas and five other regional nations has been stagnating, effectively suggests this nation is losing its ‘best and brightest’ minds to other economies.

This, in turn, has major implications for the productivity, innovation and creativity of Bahamian firms and the wider economy, all areas where it is suggested this nation is not as competitive as it might be.

The IDB report’s authors, Inder Ruprah, Karl Melgarejo, and Ricardo Sierra, summed it up thus: “The Caribbean countries have lost more than 70 per cent of their labour force with more than 12 years of schooling through emigration.

“This is worrisome because one of the few non-controversial stylised facts in economic growth literature is the positive contribution of education to economic growth. Thus, migration affects the Caribbean countries’ ability to generate economic growth and jobs.”

The IDB study pegs the combined impact of this ‘brain drain’, plus the money spent on these Bahamians’ education, at 4.4 per cent of GDP. With Bahamian GDP currently estimated at around $8 billion, the ‘dollar value’ of that 4.4 per cent is around $350 million.

The Bahamas, though, is far from alone in the ‘brain drain’ problem. And, in comparison to regional peers, it is among those that suffers the least loss, only Surinam (at 48 per cent) losing fewer of its tertiary-educated workers.

In contrast, Jamaica and Guyana both see more than 85 per cent of their college/university graduates migrate abroad for work. And the Bahamas also suffers the least loss in terms of GDP impact and the number of secondary school graduates (10 per cent) who head abroad seeking work.

The IDB study gives no explanation as to why 61 per cent of Bahamian tertiary graduates head abroad, although the likely reasons include the fact many of them stay overseas when their college degrees are completed; the narrowness of the Bahamian economy and opportunities at home; and a lack of information about openings in the Bahamas.

Still, the findings have worrying implications for the Bahamas, as they indicate an entire generation of entrepreneurs and top-level managers may be heading abroad, never to return. And with Baha Mar set to create 5,000 extra jobs, and other major investment projects coming on stream, this nation needs all the top-quality labour it can get.

To reinvigorate Caribbean economies, the ID study suggested they “reorient trade in goods and services towards growing niches”, namely faster-growing countries with rapidly expanding middle classes.

Taking Brazil as an example, the authors suggested that had it been the Bahamas’ main trading partner during the 2008-2012 recession, this nation would have seen a 4.5 percentage point difference in its annual growth level.

“The average increase in annual growth during the Great Recession would have been 2.1 per cent for the Bahamas,” the IDB study said. “Over the next six years, the simulation exercise shows that the increase could reach 0.8 per cent for the Bahamas.”

The Bahamas is currently targeting Brazil for increased financial services, trade and tourism business, and the IDB study suggested that instead of an average 0.4 per cent GDP contraction in 2008-2012, this nation could have enjoyed a 1.68 per cent growth rate had the Latin American state - not the US - been its main trading partner.

And, in the same scenario for 2013-2018, the authors project that the Bahamas would enjoy a 2.88 per cent average GDP growth rate instead of 2.3 per cent. Per capita would also be slightly higher by around $200 per person.

Noting just how badly the Bahamas was impacted by the 2008 recession, the IDB study said this nation collectively lost 40 per cent of its GDP between 2008-2012, based on 2007 growth levels. Only Trinidad fared worse.

And the authors also added their voices to those expressing uncertainty over whether Baha Mar would grow or split the high-end visitor market with Atlantis come 2015.

“The total investment in Baha Mar is estimated to be about US$3.5 billion, and the hotels in the development are expected to increase the number of available hotel rooms by 2,000,” the IDB study said.

“However, being successful will require a substantial increase in the airlift to the island, plus a policy of diversification of tourist source countries such that the Baha Mar represents additional tourism rather than a diversion from the existing hotel complex, Atlantis.”

The IDB report also warned that economic growth and competitiveness in the Bahamas and wider Caribbean was being undermined by “special interest groups”, who were using “rent seeking” and other tactics to redistribute social wealth.

“By enlarging their slice of the pie (real GDP), these interest groups reduce the enlargement (economic growth) of the total pie, which in turn reduces total social gains,” the IDB study said. “This happens by influencing policy.”

Small, stable Caribbean societies such as the Bahamas fostered the creation and embedding of these “growth-retarding special interest groups”, it argued.

As a result, there is “a lower level of public trust of politicians, more unproductive rent-seeking, and a greater degree of wastefulness in government spending.

“Government officials engage in more diversion of public funds, show greater favouritism, and Caribbean businesspersons make more irregular payments and bribes. The only area where Caribbean tourism-based countries are at the same level as their [small island states]counterparts is judicial independence,” the IDB study said.

“Thus, the very feature that the Caribbean is proud of - political stability -may have created the conditions for and sustained an alliance against growth. In other words, Caribbean states are good for (some) businesspersons but not necessarily good for business.

“Thus, the difference in growth between Caribbean countries and other small economies could be due to Caribbean governments not being as good for business.”

June 16, 2014

Tribune 242

The poverty rate in The Bahamas increases

Poverty rises 3.5 percent

43,000 living below poverty line

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

Forty-three thousand people were living in poverty in The Bahamas at the time of a survey conducted in the first half of 2013, the Department of Statistics revealed yesterday.

The results of the Household Expenditure Survey showed that 12.8 percent of the population lived in poverty, an increase of 3.5 percent over the 9.3 percent of the population who lived in poverty at the time of the Living Conditions Survey in 2001.

The absolute poverty line — the minimum required for an individual to meet his or her basic needs — stands at $4,247 annually.

In 2001, the absolute poverty line stood at $2,863.

The latest survey was conducted between February and June 2013.

The results showed that Haitian nationals had the highest prevalence of poverty at 37.69 percent.

But Haitians represent 7.48 percent of the population, according to the survey.

While the rate of poverty among Bahamians stood at 11.14 percent, Bahamians represent 87.68 percent of the population.

The rate of poverty among people from the United States, United Kingdom and Canada stood at 3.36 percent.

Those nationalities represent 1.62 percent of the population.

Other nationalities in The Bahamas have a poverty rate of 3.69 percent.

Almost three quarters of the poor resided in New Providence, where the poverty rate stood at 12.68 percent.

The rate of poverty in Grand Bahama was 9.69 percent.

The survey notes the rate of poverty among the Family Islands collectively stood at 17.16 percent.

Director of Statistics Kelsie Dorsett said the downturn in the Bahamian economy in conjunction with the rate of unemployment contributed to the increase in poverty levels.

Unemployment was recorded at 16.2 percent in May 2013.

That figure dropped to 15.4 percent, according to the latest Labour Force Survey results, which were released earlier this year.

Although the rate of poverty among women was lower than men, women represented a slightly larger percentage of the poor, according to the survey.

Men represented 48.17 percent of the poor, while women represented 51.83 percent of the poor.

The survey indicated the number of households considered below the poverty line increased from 5.3 percent in 2001 to 8.7 percent in 2013, an increase of 3.4 percent.

Households headed by women, which accounted for 47 percent of all poor households, had a higher rate of poverty than households headed by men, according to the survey.

The poverty rate among households headed by men stood at 7.9 percent compared to 9.7 percent poverty rate among households headed by women.

Dorsett said the survey provides a comprehensive and accurate profile of the poor and the data is critical to the formation of policy to address the needs of the poor.

“It will also be used, I am sure you have heard Social Services talk about their conditional cash transfer program system, which they are soon to implement,” she said.

“This will guide that system, assess it and help to monitor that system.”

The release of the survey’s results comes amid national discussion over the likely impact value-added tax (VAT) will have on the poor after it is implemented on January 1, 2015.

Minister of State for Finance Michael Halkitis has said the cost of living is expected to rise by four percent.

Asked whether the poor can sustain this increase in the cost of living, Dorsett said the government has made presentations on how it expects the poor to be impacted. She did not want to comment beyond that.

Social Services Minister Melanie Griffin has said the government can “handle whatever fallout” may come from the new tax.

She said if the government finds that its efforts to protect the poor are insufficient, additional funding would be requested.

The government is in the process of implementing a new social safety net program, which is expected to streamline the assistance process.

In 2012, Griffin revealed that the number of people receiving some form of help from the government ballooned to around 10,000 people from 3,000 people in 2004.

The Department of Statistics interviewed the occupants of 2,123 households as a part of the survey.

Dorsett said her department hopes to conduct a Household Expenditure Survey every five to six years.

June 11, 2014

thenassauguardian

Premature Value-Added Tax (VAT) rate increase announced

Vat Rate Rise 'Criminal' If No Compliance

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A former Bahamas Chamber of Commerce president yesterday it was “criminal” for the Government to already be talking about increasing the 7.5 per cent Value-Added Tax (VAT) rate prior to getting the existing tax system’s compliance levels to 80 per cent.

Dionisio D’Aguilar described suggestions by John Rolle, the Ministry of Finance’s financial secretary, that the VAT rate would likely increase in “the not too distant future” as “premature”.

“It’s too early for them to say what’s going to happen or not,” he told Tribune Business. “They don’t know how much revenue it’s going to yield. It’s premature of him to say that.

“The Government has a lot of legwork to do to improve revenue collection and the enforcement of collection. It would be criminal for them to talk about increasing the rate before they’ve raised the compliance threshold. They should get it to 80 per cent before they raise the rate.”

Mr D’Aguilar added: “If we were to collect everything we were supposed to collect, we would not need the VAT, and it wouldn’t just be honest people paying the Government.

“The Government has to think about how they’re going to enforce compliance. They can’t keep increasing taxes or introducing new ones unless they collect the ones on the table.

“You talk to politicians about how to do it, and they skirt the issue all the time. They just don’t want to take tough decisions to implement collections. Talk to Perry Christie and John Rolle, and they have no answers.”

Given the problems the Government already has in collecting all the Business Licence fees, real property taxes and border taxes due to it, Mr D’Aguilar questioned how it would cope with VAT.

“People don’t pay unless you get vicious,” Mr D’Aguilar told Tribune Business. “Unless you crush that rock, I don’t think you can talk about increasing the VAT rate.”

Robert Myers, the Coalition for Responsible Taxation’s co-chair, yesterday told Tribune Business that fiscal reform had to “hold everyone’s feet to the fire”.

“Already the consumer’s feet are being held to the fire because we’re all going to be paying more in tax,” Mr Myers said, referring to the increased cost of living/reduced living standards that VAT will bring.

“Our position is that it cannot happen without government’s feet being held to the fire,” he added. “They need to be accountable for compliance and working towards a balanced Budget, and accountable for expenditure.

“That means expenditure control, as we’ve been living beyond our means. They’ve [the Government] been doing that almost year-over-year for the last 30 years.

“That’s where we’ve been very adamant that it’s got to be tough love. We don’t mind paying, but you in government have to be accountable, and have some control.”

Mr Myers agreed that much uncertainty surrounded the 2014-2015 Budget because its content was determined in the last 72 hours prior to the Prime Minister’s address.

“I think a lot of it has kind of been a bit unsure because the timing was not great,” he said. “We’re all guilty on that standpoint, but it couldn’t be helped. We moved as fast as we could.”

June 04, 2014

Tribune 242

The new value-added tax (VAT) proposal

Budget 2014/2015: Answering the questions on VAT

Last week, the prime minister of The Bahamas delivered his budget communication to the House of Assembly. As expected, the speech and details of the aforesaid communication attracted a lot of attention from the Bahamian people as we sought information and clarity on the plans of the government for the new fiscal year. Chief among our interests in the communication was the specific details on the proposed value-added tax (VAT) regime.

There is no doubt that we now possess more information on how VAT will be implemented in The Bahamas and some level of certainty has been provided to the private sector and the Bahamian public as a whole. In this piece, we take a look at what we now know, analyze some initial commentary and responses, as well as determine the questions that ought to be answered as we move toward the implementation of VAT.

The government’s position

After over a year of extensive deliberations, engagement of myriad experts, multiple reports commissioned by the various stakeholders and sometimes emotional debates on fiscal and tax reform, the government has specified that VAT will be introduced at one single rate of 7.5 percent effective January 1, 2015.

The announced positions were driven by consultations with the private sector and other stakeholders and reflected compromises on the part of the government after having proposed a standard rate of 15 percent, a special rate of 10 percent and an implementation date of July 1, 2014.

Additionally, it is anticipated that fewer exemptions than originally proposed will be granted and the Ministry of Finance will have the necessary resources by October 1, 2014. In this regard, the government ought to be commended for keeping its promise of working with the private sector and taking their concerns into consideration in making the final decision.

The new VAT proposal also entails a VAT-inclusive pricing system to simplify price comparisons by consumers and more favorable procedures for accounting and tax credits, as well as refunds to accommodate small businesses.

Based on the lower rate at which VAT will be introduced, there will not be a wide-scale reduction in import duties and excise taxes during this budget cycle. However, the government has indicated its willingness to revisit these taxes in the next fiscal year as The Bahamas moves closer to accession to the World Trade Organization.

The impact of VAT on government finances

The acknowledgment of the importance of curbing government expenditure and the deficient nature of our current tax system in the budget communication is welcomed.

It is hoped that this will translate into a calculated and focused effort to ensure a more efficient allocation of taxpayers’ funds and the effective collection of taxes by the government going forward. This is vital as the fiscal predicament of our country cannot and should not be addressed solely from the revenue side. The government must remain resolute in the implementation of its fiscal consolidation plan.

It was noted in the budget communication that tax revenue as a percentage of gross domestic product (GDP) for The Bahamas is expected to be about 17.1 percent in 2013/14 which is significantly lower than the global average and lags behind the regional norm.

According to the Organization for Economic Co-operation and Development (OECD), the average tax to GDP ratio in OECD countries was 34.6 percent in 2012. While this suggests that we have the capacity to increase tax yield to meet the demands on government, the rise ought to be gradual and calculated to ensure sustained economic growth and to avoid a distortion of the economy.

That being said, VAT is expected to only slightly enhance revenue yield by 1.5 per cent of GDP in 2014/15 based on the date of implementation, while other revenue measures outlined in the communication are expected to increase revenue by 2.7 percent of GDP in 2014/15 with a resultant improvement in overall tax yield as a percentage of GDP from 17.1 percent to 19.8 percent.

Are there any winners or losers?

It was recently reported that the Inter-American Development Bank (IDB) in its Caribbean Region Quarterly Bulletin had suggested that The Bahamas has “further worsened its potential” to be downgraded by one or two notches by international credit rating agencies due to the postponement of the implementation of VAT.

This report highlights the potential risks to the maintenance of our investment-grade rating and further drives home the point that has been reiterated over the last two years – that we need to urgently address the fiscal challenges confronting us as a nation.

The positive side in this discussion is that as we now know that VAT will definitely be implemented at the specified rate at a specific date; this should dispel any doubts in the minds of international rating agencies as to whether we will be proceeding with tax reform. When combined with the downward trajectory of our GFS deficit evidenced by a reduction in the GFS deficit to 5.4 percent of GDP in 2013/14 compared with 6.3 percent for 2012/13, international rating agencies should be comforted that the government is committed to fiscal reform; after all S&P had indicated earlier that our overall fiscal plan will guide any decisions on revisions to The Bahamas’ rating.

Against this backdrop, it is obvious that we cannot approach the issues of fiscal and tax reform from a win or lose perspective based on the interest group we belong to. Rather, we must seek the best formula and optimum strategy to address an issue of significant implications for our commonwealth.

It is difficult sometimes to understand the rationale for certain commentaries that appear to ignore this reality. The decision of the government not to carry out any wide-scale reduction of custom duties with the implementation of VAT, while it has invoked some commentary, could be understood in the initial implementation phase of VAT. It is often said that the devil you know is better than the angel that you don’t; hence, the government must exercise prudence and conservatism so as not to further worsen the country’s fiscal position in the event that actual revenues from VAT are not in line with projections.

The other important details

Now that we have the most important details on VAT, there is other specific information that should be provided as soon as possible to enable proper preparation for the new tax system. It is important that the full list of exemptions (which are expected to be fewer than initially proposed) is released.

In this regard, the discussions with sectors that will be impacted by this new proposal should be expedited by the government. While we do not expect wide-scale reductions in custom duties, the planned reductions should be communicated to stakeholders and the general public in a timely manner to allow for the necessary internal changes.

Industry-specific guidelines on VAT would also be very helpful in simplifying the information contained in the VAT legislation and assist businesses with VAT compliance.

Concurrently and in the lead-up to the implementation date, more information should be provided on the reforms to the social welfare system aimed at minimizing the impact of VAT on lower income families.

Finally, the proposed public education campaign which will entail private sector involvement must now commence without delay. The clock is ticking and even though it seems like we have a lot of time before VAT implementation, there is much work to be done.

• Arinthia S. Komolafe is an attorney-at-law. Comments on this article can be directed to a.s.komolafe510@gmail.com 

June 03, 2014

thenassauguardian

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