An Open Letter to Dr. Hubert Alexander Minnis, Leader of the Official Opposition - FNM party

Dear Dr Minnis:

You have had your opportunity to lead The Bahamas and make an historic difference, but you have squandered it from day one.  It all started with your demagogic position on VAT – leading up to the 2017 general election.

Although you were right at the table in the last Hubert Ingraham FNM Administration – between 2007 and 2012 - where the implementation of VAT in The Bahamas was set in motion, and subsequently implemented by the Perry Christie PLP Regime of 2012-2017 at 7.5%, you played brand new and publicly opposed it.

Then after the FNM won the 2017 election, you became the Prime Minister and increased the VAT rate to where it is today – at 12%!  So, you unwittingly provided all the nails for your political coffin.

It was a hugely unforgiving political move, as the Bahamian electorate would let you know in overwhelming fashion in the 2021 election.  You did it to your own lying self Dr, and you will always be remembered publicly for it.

On top of your unbearable VAT increase, came Hurricane Dorian and the Corona.  All hell break loose after that.  

And we, the poor people especially – were waiting patiently on your lying ass. You could of felt it - no doubt, so you knew what was coming down the pipe.  

That’s why you jumped before you were pushed, and called an early election.  Good move bro.  You are now officially done!

Regards,

Dennis Dames

Views and commentaries on the proposed value-added tax (VAT) system in The Bahamas

The fiscal reform series: About that VAT

The views and commentaries on the proposed value-added tax (VAT) system have been as diverse as they have been inconsistent. What makes the discussion even more interesting is that the divergent opinions have come from economists, experts in this form of taxation and industry leaders.

There is often the tendency for facts to either be lost or manipulated in a prolonged debate, with the loudest or most frequent message being perceived as the ultimate truth. It is therefore important that we filter out the proverbial noise in the market and unravel the actual facts that will enable us to develop our own opinions on the proposed VAT framework. In this article we briefly consider the various utterances made by both local and foreign individuals as they chimed in on the ongoing debate on VAT in The Bahamas. We will subsequently embark on the tasking journey of understanding VAT and what it means for the average Bahamian.

The Barbados experience

It was reported a number of weeks ago that the Governor of the Central Bank of Barbados, Dr. Delisle Worrell, had indicated that VAT is an anti-tourism tax and had hurt that country’s local industry. Worrell was also reported as stating that the tax is very complicated and suggested his preference for a simple sales tax. We will examine sales tax as an alternative later.

A few days after the aforesaid report on the comments of Worrell, The Nassau Guardian quoted Lalu Vaswani, president of the Barbados Chamber of Commerce and Industry (BCCI), as saying that VAT has been good for the economy of and businesses in Barbados. Vaswani noted the level of concern and anxiety within Barbados prior to the implementation of VAT; an experience that seems similar to the current pre-VAT environment in The Bahamas. Of particular note was his reference to an adage that a rope in a dark room feels like a snake. More recently, Mark Shorey – a VAT expert out of Barbados with about 20 years experience in VAT consultancy and a member of the VAT implementation unit – weighed in on the VAT debate in The Bahamas. Shorey remarked that anti-VAT hoteliers will not be satisfied and indicated that training closer to implementation may be more effective. In the end, Shorey suggested, the implementation of VAT in Barbados was successful and is a model that could help The Bahamas.

Chronicles of the local commentaries

Comments attributed to past and present government officials with responsibility within the Ministry of Finance have been consistent insofar as they relate to the urgent need to address our fiscal imbalance. These individuals have also been backed by some locally respected professionals who have cautioned that we are between a rock and a hard place with the window for remediation closing with each passing day. A common concern has been the rate at which VAT is introduced, with recommendations for a rate lower than the proposed 15 percent.

The main opponents of VAT from the business community have been fervent in their campaign against this form of taxation, arguing that it is not appropriate for The Bahamas and would increase the cost of living while further shrinking the middle class. A study of jurisdictions that have implemented VAT will show that the fear and anxiety being expressed is not unique to The Bahamas, nor is it unusual for various interest groups to voice their concerns. The emergence of groups that purportedly represent the populace and average citizens has also inserted a unique dimension to the ongoing debate on VAT.

WTO accession and a replacement tax

We know that the government requires among other measures on the expenditure side, additional revenue to correct our structural recurrent deficit. However, the recent revelation by the co-chair of the Coalition for Responsible Taxation that the group was not aware that the reduction in tariff rates has to be immediate and cannot be phased in as The Bahamas seeks to join the WTO is indeed food for thought. This raises the question of how effective the government has been in explaining the link between our efforts to join the WTO and the introduction of VAT.

It appears that the case for our urgent accession to the WTO has not been adequately presented to the average Bahamian. It can also be argued that not enough has been said to sensitize the public to the fact that VAT is intended to replace the significant amount of revenue the government will be forfeiting as tariff rates are reduced to facilitate our accession to the WTO. Perhaps this is an indication of the oft manifested culture of addressing matters in vacuums or isolation without due attention to the bigger picture. It follows therefore that if VAT on goods is expected to replace existing tariffs on goods, the introduction of VAT should be neutral in relation to government revenue. This will not however be the case as the government expects to raise some $200 million in additional revenue from VAT on services which have been untaxed for quite some time even though our economy is for the most part service based.

The progressive aspect of a regressive tax

There is no doubt that VAT cannot be classified as a progressive form of taxation and is generally regarded as a regressive tax. In this regard, there have been numerous criticisms of this proposed tax system and suggestions for alternatives which are deemed to be more progressive in nature, including income tax.

Warren Buffett – the man often referred to as the Oracle of Omaha and regarded as one of the greatest investors of all time – has been a proponent of the rich paying more taxes in support of the philosophy of U.S. President Barack Obama. Locally, businessman Tennyson Wells has been quoted as stating a similar view, albeit from the perspective of a different school of thought on welfare, allocation of the tax burden and the trickle down paradigm. Nevertheless, as research has shown that individuals who are more well off spend a higher percentage of their income on services than goods when compared to the less well off, one can conclude that the introduction of VAT will increase the amount of taxes paid by the upper class in our country over that paid by the lower class. It should be noted that this does not eliminate the expected increase in the cost of doing business for companies, though this will ultimately be borne by the consumer.

VAT versus sales tax

The complicated nature of a VAT system has been a major component of the concerns raised by the private sector with preference for a sales tax being expressed. The government had documented its rationale for proposing VAT as opposed to other forms of taxation in the white paper released in February 2013. While the paper did not provide ample details on the analysis conducted on each type of tax prior to the selection of VAT, the superiority of VAT over sales tax in terms of enforcement mechanisms is apparent.

It is therefore understandable why the government would prefer VAT over a simple sales tax. It is a known fact and Shorey confirmed that VAT has inbuilt self-policing and compliance features which reduce the level of resources that the government will have to allocate to its compliance efforts. In effect, VAT creates a level of accountability, responsibility and transparency that makes registrants and in some cases consumers, agents of the Central Revenue Agency with significant incentives and penalties ensuring that the government receives VAT payments. On the other side, it is expected that businesses will prefer a sales tax system which is easy to administer because it requires the collection of taxes at the point of sale instead of throughout the production/value chain as required in a VAT regime.

Conclusion

The German-born American artist Hans Hofmann famously stated that "the ability to simplify means to eliminate the unnecessary so that the necessary may speak". It is time to rid ourselves of the unnecessary commentary in the VAT debate and focus on the facts necessary to move the discussion on fiscal and tax reform forward. Only then can a constructive discussion about the VAT that has become associated with fear and uncertainty, as well as proposals for viable alternatives, begin. Next week we will take a deeper dive into the features of VAT and the contents of the draft VAT Bill and regulations. In the interim, the various stakeholders need to disclose all the relevant details and simplify the information necessary for all to comprehend.

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

April 01, 2014

thenassauguardian.com

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

Ryan Pinder: VAT rate will depend on web shop taxes

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

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

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

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

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

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

Wilchcombe is pushing to regulate web shops by July 1.

The government is expected to tax web shops and winnings.

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

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

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

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

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

The government’s target date is July 1.

But Christie has hinted there might be a delay.

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

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

The chamber established the Coalition for Responsible Taxation.

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

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

March 25, 2014

thenassauguardian

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

Gov't To Collect Just Over Half Initial Vat Goal

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

March 10, 2014

Tribune 242

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

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

...the implementation of Value Added Tax (VAT) along with The Bahamas’ accession to the World Trade Organisation (WTO) will greatly improve the country’s market and trade access

VAT Will Increase Market Access, Says Pinder

by Korvell Pyfrom
Jones Bahamas

Financial Services Minister Ryan Pinder said yesterday Bahamians will have greater market access and trade when Value Added Tax (VAT) is implemented later this year.

The government is preparing to table VAT legislation which is expected to be implemented on July 1.

The government has indicated that VAT will be at a rate of 15 per cent.

Mr. Pinder said that the implementation of VAT along with The Bahamas’ accession to the World Trade Organisation (WTO) will greatly improve the country’s market and trade access.

“The VAT legislation will help us stimulate greater market access and greater trade,” he said. “Duty rates on goods are going to proportionally decrease so the cost of goods shouldn’t be an inflationary aspect. Value Added Tax is intended to reach services rather than have a measurable effect on goods.”

Mr. Pinder also assured that the implementation of VAT will bring about transparency as he noted that it would be in the best interest of companies to comply and file claims accurately.

“Every company will have to file a return with the government in order to claim that credit and if that company doesn’t file the claim they will end it up paying too much VAT which will be harmful to their business. So it’s almost a self enforcing mechanism to keep the integrity within the companies that have to report. It’s a small segment of the commercial base – those over $100,000 in turnover.”

Prime Minister Perry Christie said on Monday that the objective of VAT is to have a system that provides adequate revenue for modern governance while providing economic growth, transparency and efficiency.

The prime minister also noted that the government has commissioned a final study on the issue.

Mr. Christie has also indicated that economists from both New Zealand and the United States will be coming to The Bahamas to advise the government.

The government expects to raise an additional $200 million in revenue through VAT.

15 January, 2014

The Bahama Journal

Value Added Tax (VAT) could hardly be effectively administered in The Bahamas ...because the country has a maladministered tax collection system

Young Man's View: Vat Roll-Out Will Be A Mess

By ADRIAN GIBSON

ajbahama@hotmail.com

THE rollout of the new Value Added Tax regime is seemingly setting up to become an unholy mess! In this the second part of my VAT series, I spoke to a former Canadian tax attorney—now resident in the Bahamas—and a noted accountant who, whilst providing a general overview, asked me to allow him time to meet with a committee of the Bahamas Institute of Chartered Accountants to not only discuss the draft legislation, but to also look at the accounting and administrative aspects of VAT before we continue our discussion in the next week or so.

My ex-pat source is a Canadian Chartered Accountant and tax lawyer who moved to The Bahamas in the late 90’s. The specialist outlook on VAT emanates from the fact that he practised tax law when the Canadian Federal government enacted the GST (Goods and Services Tax) and the Quebec government enacted the QST (Quebec Sales Tax).

According to my source—he wishes to remain anonymous—VAT could hardly be effectively administered in the Bahamas because the country has a maladministered tax collection system.

Available data about the Canadian Goods and Services Tax (GST)—that jurisdiction’s Value Added Tax—shows that that country’s Federal Government launched it in 1991. At the outset, the VAT was introduced at a rate of 7 per cent and subsequently reduced to 5 per cent (where it currently stands). What’s more, Canadian VAT isn’t readily noticeable in advertised prices, as the tax is only appended to one’s purchases upon the calculation of a consumer’s payment, for example, if one buys a cell phone for the sale price of $200 only to have an additional five per cent or $10 added at the cash register.

That said, here in the Bahamas VAT we have decided to jump the gun and implement VAT—from the very beginning—at a whopping 15 per cent. That seems a bit absurd. Three or five per cent—or even seven per cent—would’ve seemed more reasonable and been more palatable, but 15 per cent seems ludicrous!

According to my Canadian source:

“Canada has a sophisticated tax system. It began with income war tax and was meant to be a temporary measure to finance Canadian war efforts in the World War. However, it is still in place today and served as the foundation for the current form of income tax.”

“In Canada, people must have books and records, which can be audited. All residents of Canada must declare income and expenses and pay taxes on their net taxable income. The ultimate VAT tax is on the ultimate consumer and that is the person at the end of the chain,” he said.

He went on: “The Bahamas is currently incapable of collecting the easiest tax in the world—property tax! There’s no country in the world that’s incapable of doing that. All the state has to do is bring a lien against the property and put it up for sale. It’s a no brainer! The government wants to impose a VAT in a country that is not used to paying such taxes and whilst the country itself predominantly operates on a cash based system.”

Frankly, my expat contact is right! Considering the fact that the Bahamas is only now moving away from the cash basis of accounting—per the Public Administration Act—to an accrual basis (meaning one must record what’s earned, what’s owed/accounts receivables and the expenses incurred). Oh, did I also say that Bahamian business persons—as is done in Canada and many other jurisdictions—would have to pay VAT on accounts receivables even if they haven’t collected the monies at that time (as long as it’s recorded)?

Frankly, the tax lawyer told me: “Everyone will pay cash here in the Bahamas! The whole concept of instituting VAT in the Bahamas is convoluted. It has not been established who will be trained or hired to audit the book and records of all the businesses that will claim tax credits? Who will make a determination as to whether the returns or statements that one is paying is true? Who is going to conduct an audit to properly determine if one is entitled to a tax credit? How many businesses are sophisticated enough to handle books and records?”

As it stands, my understanding is that the threshold for a business being exempted from paying VAT is $100,000. But, frankly, what stops a Bahamian business person from subdividing their companies, all to duck exceeding this threshold? Is the government going to pass legislation addressing the concept of associated companies, similar to what has been done in the United States and Canada to prevent tax fraud? In the US, if—for example—a corporation is seeking to attain a lower tax rate on its first $200,000 of corporate income, as the company approaches the $200,000 threshold its principals could simply incorporate another. In the US and Canada, if it’s found that two or more companies have similar principals or that they have been incorporated to avoid taxes, they are considered to form one pool and found to be related. So, what stops Bahamians from breaking up their companies and doing the same to avoid VAT?

Quite honestly, as it relates to VAT, I don’t believe that our national behaviour—as it concerns paying taxes and tax collections—is at a level to foster the sort of compliance that is absolutely necessary for the implementation of VAT in another few months. The effective implementation of VAT would largely depend on a culture of ethics and compliance. And, honestly, there’s not enough advance time to put in the measures, and all the other requisite aspects of a tax structure, to ensure compliance!

According to noted Certified Public Accountant Reece Chipman, “the whole VAT system—along with FATCA requirements—will be pulling money away from our economic base, along with the pressures of the OECD. It’s going to be a case of separating the sheep from the goat, the haves from the have-nots. It’s going to hit you personally and it’s going to hit you in an economic capacity, in the way we think, buy and consume. When one looks at all that is happening collectively, it’s hard. If it were happening individually, there might be room for adjustment (referring to FATCA, etc, coupled with VAT).”

So, will the ultimate responsibility for the collection of VAT fall on the Ministry of Finance or will the government pass legislation to establish a Central Revenue Agency (CRA)? If such a body is created by policy/regulation—as opposed to legislation—Mr Chipman believes that “when one thinks about compliance and penalties, it wouldn’t have that level of authority.”

According to Mr Chipman, the consumer will find themselves paying the 15 per cent whilst most “businesses will be acting as agents for the government, collecting and sending money to the government.”

“The question is, if a business is not a registered VAT agent, such a business shouldn’t be charging a consumer 15 per cent. If one doesn’t want to pay VAT, they would simply buy from those persons who are not VAT registrants, for example, Super Value could potentially get hurt as persons would shop at smaller petty shops that are exempt. There are avenues that consumers—within a household—can look at in terms of savings. My family and I will probably go and sit down and figure out how to shop, to find where we can get the most bang for our buck and if that means at the smaller convenience stores or shopping in bulk, then that’s the approach we would have to take,” Chipman said.

He went on: “We’re still on a cash based system and in cash based societies, people generally look at things to be avoided. What if stores decide to have two cash registers, one for adding up purchases for which VAT is applied and one for purchases that reflect no VAT. In Jamaica, you hear of issues of non-compliance all the time. People are looking for ways to legitimately avoid the process and one realizes that 15 per cent is no small amount. If VAT is introduced at 15 per cent, even in accounting, if I charged $10,000 before, I would now have to charge $11,500 and that higher cost could put me at a disadvantage when compared to accountants in other jurisdictions.”

So, will a Central Revenue Agency (CRA) be tied to the Registrar General Department and Business Licensing in order to detect those persons who establish multiple companies for the purpose of avoiding taxes? What are the penalties proposed for such persons?

How would a CRA be constituted? Would it be composed of accountants, auditors, outside consultants, who?

I look forward to hearing the debate of the draft VAT legislation in January!

Tribune 242 

Caribbean Blog International

Value Added Tax (VAT) Draft Bill and Regulations

Public Notice

VAT Draft Bill and Regulations

Published Date : November 29, 2013

Drafts:

Guide to VAT Legislation

Draft of Value Added Tax Bill

Draft of Value Added Tax Regulations

The drafts of the Value Added Tax (VAT) Bill and Regulations are being released to expand the public discussion and consultation process on the fiscal reform initiative. The drafts summarize the government policy framework for advancing the implementation of the tax.

Following the consultation process and prior to the passage of the legislation the Government reserves the right to revise the policy framework, having regard to the initial phasing of customs tariff and excise tax reductions (and correspondingly the rate of the tax) and the scope of VAT exemptions.

This process is to ensure that the revenue and fiscal consolidation targets are maintained. Revisions to the management structure for the CRA will also be reflected in the draft legislation to be sent to Parliament.

The public is invited to submit comments on the draft to the Ministry of Finance as follows: taxreform@bahamas.gov.bs

The Financial Secretary
Ministry of Finance
Sir Cecil Wallace Whitfield Centre
West Bay Street
P.O. Box N3017
Nassau, The Bahamas

For Futher information please contact:
Contact name: Ministry of Finance
Telephone: (242) 327-1530

Contact name: Value Added Tax Unit
Telephone: (242) 225-7280

Viable alternatives to Value Added Tax (VAT) ...and ways to increase revenue ...and ultimately ...reduce The Bahamas debt

The Democratic National Alliance (DNA) on, "The VAT Story"

 

While the Bahamian people stare down the barrel of the government’s proposed Value Added Tax (VAT) due to be implemented in July 2014 we remain uncertain of what to expect will come out of that barrel – we just know it won’t be good.

Aiding in the confusion we feel as the date rapidly approaches is the inconsistent statements of the Prime Minister who one moment speaks of the inevitability of VAT and the next seems to plead for an alternative from the business community. More recently the Prime Minister blames the financial mess left behind by the FNM for forcing his hand to introduce a tax that he said he took the International Monetary Fund (IMF) to task twice over pressure to implement.

The Prime Minister’s statements in reaction to public statements of former PLP Cabinet Minister George Smith and more recently former Central Bank Governor James Smith have only served to cement the fact that our country has no direction.

A week after James Smith, now chairman of CFAL and a consultant to the Ministry of Finance, said that he is a proponent of VAT but believes a lower rate would satisfy international credit ratings agencies and be more palatable for the private sector, the Prime Minister agrees and says he clearly must take Mr. Smith’s advice into consideration. We know from the Prime Minister’s comments last week that he is concerned for his and his party’s political future as he doesn’t want “young men like Halkitis and Khaalis Rolle sitting in the meeting with me to lose an election because I don’t question you (IMF) on what you’re telling me I should do?” Do they really “Believe in Bahamians”?

A government who truly cared about Bahamians would have first come to the Bahamian business community and sought a solution before trying to ram a tax down the throats of Bahamians despite knowing the inflation and economic regress it has caused in many other Caribbean nations.

The Democratic National Alliance has, over the past months proposed viable alternatives to VAT and ways to increase revenue and ultimately reduce debt. We believe it is more than capable of being accomplished and we have outlined these suggestions in the DNA’s Three Point Plan to Prosperity.

The DNA believes firstly: We can achieve efficient government operation, consistent of proper collection of existing taxes, constraining the growth of government spending and limiting government borrowing to a percentage of revenue, introduction of a national procurement agency, privatization of Water & Sewage, Bahamas Electrical Corporation, Bahamasair, implement a proper Freedom of Information Act, enforcement of the Public Disclosures Act, introduction of Whistle Blowers Act and elimination of cronyism projects and perks.

The DNA believes secondly: We have tax alternatives, consistent of implementation of goods & service tax between 5% and 7% levied at point of sale, reduction of duties to 10%, reduction of government subsidies to tourism related by 50%, land tax above certain nonperforming acreage and withholding tax applied to education.

The DNA believes thirdly: We can grow the economy by making the business community successful, through a reduction in cost of electricity (14c per KWH in power generation 3c per KWH in distribution), reduction in the prime rate by 50%, reduce cost of capital through structured elimination of exchange controls, diversification of the Bahamian economy, incentives to the small business sector, empowering working Bahamians through increasing the minimum wage to $7 per hour and making available ownership of crown land through a National Land Bureau.

We believe that through consultation with the public and private sector together with measured and decisive leadership we can not only turn the economy around and reduce the debt but create an economy that will bring prosperity to more Bahamians. After all, isn’t that what good governance is about – making life better for Bahamians?

Branville McCartney
Leader
December 1, 2013

National Anxieties over Value Added Tax (VAT)

Young Man's View: National Anxiety Over Vat

By ADRIAN GIBSON

ajbahama@hotmail.com

TODAY, as national anxieties are being expressed about Value Added Tax (VAT) and our country faces uncertain times, I’ve decided to take a cursory glance at this hot button topic with a view to expanding the discussion from various angles, from the local and international perspectives to more technical and scientific points of view, in a series of columns in the next week and thereafter. Yes, while one recognises that we’re facing an unsustainable debt to GDP ratio and, moreover, that we must reform our system and restructure our broken methods of tax collections, the government’s thrust to implement VAT on July 1, 2014 is nonsensical and absolutely farfetched.

 

There is no question that the perpetual gap between expenditure and revenue has put us in a very precarious position, a position that demands some type of real action but VAT is only one potential solution. Notwithstanding the fact that one of the PLP’s election mantras centred around ‘no new taxes’, to introduce a form of taxation such as VAT, without enough lead time to allow for proper dialogue, has created uncertainty in the country, not only among the business community but everyday, average Bahamians. The aforesaid, combined with an incongruously optimistic, impulsive approach to tax reform has forced the government into what appears to be a schizophrenic economic ramble where Bahamians are now being forced to hastily take a bitter pill.

 

As one learned friend of mine told me: “The debate on VAT forces those of us in the so-called responsible element of society to abandon the ‘I told so posture.’ And so, we’re now finding ourselves in the awkward position of having to provide the government with the ideas that they ought to have had and which they claimed to have possessed on day one. Thankfully the Bahamian citizenry have responded in such a way and are providing enough creativity that they just might bail this hapless crew out of their dilemma. It’s my hope that Bahamians remember this when it is time to punish them!”

 

And so, why VAT? Thus far, I haven’t seen any feasibility study showing where the government set about comparatively analysing the various forms of taxation. I know that in a paper a few years ago the IMF suggested that the Bahamas’ government “strengthen administration of existing property and trade taxes, review FDI (Foreign Direct Investment) incentives and shift the tax base to domestic consumption--endorsing the adoption of a broad-based VAT.” So, is the choice of VAT simply based on the IMF’s recommendations or did the government explore other options, say income tax or, for that matter, simply organising and launching an internal revenue service that collects all outstanding government debt and, even more, passing legislation that proffers serious penalties for tax cheats. It seems to me that rather than explore all our options, the government has capitulated to the international credit agencies!

 

Why can’t we look for creative means to forego or prevent our descent down the slippery slope on which many countries have found themselves?

 

Make no bones about it, in the absence of proper controls relative to corruption and waste, VAT will be a disproportionately painful experience for the Bahamian middle class. As a friend told me, “so much for believing in Bahamians!” The most conservative VAT impact estimate predicts anywhere from five to 10 per cent increase in the cost of living and a similar reduction in disposable income. What’s more, financial analysts forecast that the implementation of VAT will be revenue neutral or negative for the first two to three years! Frankly, such a tax manoeuvre, with no direct impact for two to three years, while the cost of living and doing business increases, could cause unrecoverable economic impairments and perhaps result in drastic fiscal measure being taken, for example, the much dreaded devaluation of our dollar. And so, we should not introduce such a radical change in tax structure without a proper impact assessment study and some idea of how to mitigate damage!

In my view VAT is being brought to the public in a haphazard, clandestine and non-transparent fashion and it appears that the only people who know what VAT will entail, once rolled out, are key Cabinet members, not even backbenchers and definitely not the Opposition.

 

In a 2009 column, I wrote “the antiquated Customs Management Act must be amended to protect the revenue base in Freeport, loopholes in the Business License Act must be closed and casino and local/foreign-owned real property taxes must be collected. According to a 2007 Auditor General report, there was nearly $400 million in outstanding real property taxes owed to the government. This amount has no doubt increased and, if the reigns of revenue collection are tightened, the country could unquestionably achieve a budget surplus. A corporate tax and taxes on profits, revenues and/or assets under management of international clients/companies must also be levied.”

 

One knows that the implementation of VAT, in any form, could only be as good as the collections agency assigned to ensure that taxes are paid to the government!

 

Consecutive governments have historically benefited by providing political patronage by condoning non-payment of gazetted government fees, whether at the Mortgage Corporation, the National Insurance Board, BEC or elsewhere. These administrations have created a culture of entitlement, even in instances where the benefits are paid for by the public purse. Frankly, before any new tax is introduced, we have to destroy the culture of entitlement and demand that all citizens, rich or poor, FNM or PLP, pay their way according to agreed terms. This very point has been the hot potato that Bahamians have taken advantage of and, quite honestly, the losses to the public treasury amount to billions of dollars.

 

There is a sizeable 8,000 pound gorilla that we refuse to acknowledge, that is, that a portion of the loss of government funds is, I believe, due to some form of corruption.

 

Bahamians will need to decide if we prefer to maintain the benefit of a few at the expense of huge financial pain for the many!

 

Accusations of corruption must be dealt with at all levels or any new tax, including VAT, will find itself with the same headaches as all the others. In the Bahamas, the cost of business and accrued costs to government is inflated by graft and accusations of bribery!

 

While it is commonly bandied about that the net exposure of the Bahamas government sits at 4.9 billion dollars, it is more in the order of 6.9 billion when one takes into account government guarantees. Indeed, it’s high time that outstanding taxes be collected, from the $400-$500 million in outstanding property taxes to the accounts receivables at the Princess Margaret Hospital that are in the order of one billion dollars to millions of dollars owed to NIB to millions in unsettled customs duties to debts of $70 million owed to the Mortgage Corporation to accounts receivables at BEC that sit near $100 million to millions owed to Water and Sewerage. At present, the Bahamas government is operating on an overdraft of an astounding $200 million dollars!

 

With all these bills outstanding and no one being forced to pay them (via court action, confiscations, etc), the only solvent “national bank” - NIB - is being forced to buy useless debt in order to keep the government afloat!

 

In a country of scarce resources and rampant consumerism, it is high-time that those Bahamians living beyond their means and in constant pursuit of material possessions most likely bought on credit be prudent spenders and heed former Prime Minister Hubert Ingraham’s admonition not to “hang (their) hats higher than (they) could reach.”

 

As a nation we must move from an economic model that seems stuck in a time-warp, which focuses on year-round tourism and financial services, to a competitive diversified model that expands public revenue and liberalises our economy.

 

In order to contain the ballooning deficit and strengthen the economy, the government must continue to streamline expenditures and even more, invest in teaching citizens new skills and encourage entrepreneurship.

 

Two of the main factors of production are human capital and entrepreneurship, with the former referring to increasing the knowledge and skills of workers through education and experience and thereby widening employment opportunities and the latter, developing new ideas, taking financial risks to develop ideas and coordinating the production and sale of goods and services.

 

November 25, 2013

 

Tribune 242

 

Caribbean Blog International

 

Cries over value-added tax (VAT)

FNM MP warns on VAT

By KRYSTEL ROLLE
Guardian Staff Reporter
krystel@nasguard.com

Shadow Minister for Finance Peter Turnquest suggested on Saturday night that the country would be “jumping off the cliff” if it implements value-added tax (VAT).

Pointing to other Caribbean countries that have implemented VAT, Turnquest said the new tax regime would bring increased hardship.

He was speaking at the Free National Movement’s (FNM) rally in the Alley at the FNM Golden Isles constituency office.

“We don't want to be like Barbados,” he said. “We don't want to be like Grenada. We don't want to be like Haiti. We don't want to be like any of those countries.

“They are crying about VAT. St. Lucia is crying about VAT. We don't want to be like that. We are a prosperous nation.

“...We have a lot to protect. So let's be careful; we don't have to follow the crowd. Everyone is jumping off the cliff. That doesn't mean we have to jump off the cliff. We can chart our own territory.”

He said the government ought to focus its efforts on the collection of outstanding taxes, including an estimated $500 million in real property tax.

Turnquest also called on the government to cut subsidies to public corporations. He said the government also has other options to enhance revenue.

The government plans to implement VAT at a rate of 15 percent on July 1, 2014. The government has said the new tax will reduce the gap between revenue and expenditure and offset rising public debt.

At the start of the next fiscal year, government debt is projected to be $4.9 billion. This year, the government estimates that it will have to pay $230 million to service its debt.

VAT is expected to add an additional $200 million in revenue in the first year of implementation, officials estimate.

While acknowledging that his party had planned to give VAT “early consideration if re-elected”, Turnquest said that doesn’t necessarily mean that VAT would have been implemented under an FNM-led government.

“We would have given it widespread consideration,” he said. “I ask the government to step back and consider other options. Present the opposition with facts. We need proper analysis.”

But former Minister of State for Finance Zhivargo Laing previously said the former administration had planned to implement VAT.

Speaking to Rotarians on the implementation of VAT in August, Laing said: “We have an extraordinary opportunity not to do something modest, but to do something audacious.

“But alas, the only crippling thing that can frustrate that is our political consideration that time may run out on us before we get to the next round of votes.  I say to you, resist that temptation and encourage your leadership to resist that temptation.”

Despite earlier suggestions, Turnquest acknowledged that the opposition does not have “sufficient” information on VAT to make an official position.

“How can any responsible party declare a position on VAT without knowing the facts,” he said.

“We don’t know enough information. We have no facts, no analysis, no legislation. How can we give the government cover? That’s silly.”

However, both Turnquest and FNM Leader Dr. Hubert Minnis have already indicated that they do not support the implementation of VAT.

Earlier this month, Minnis described VAT as “regressive”.

In a two-page statement, Minnis said VAT would “seriously impair the already weak, uncompetitive and struggling Bahamian economy and harm and diminish the quality of life of every Bahamian”.

During the rally, Minnis called on the government to stop taxing the country.

Turnquest offered similar statements.

“VAT is not the answer,” he said.

November 25, 2013

thenassauguardian

Caribbean Blog International

Tamara Van Breugel on Value Added Tax (VAT) in The Bahamas

Citizens Must Unite To Be Heard In The Vat Debate

MY NAME is Tamara van Breugel and I am a citizen of the Commonwealth of the Bahamas. I am a young working mother, my family owns a small business in the city, and I strongly believe there are responsible alternatives to VAT.

 

First of all let me say that I am by no means an expert on economic theory or taxation, I am not a representative of any political persuasion, and I have no special interest ties other than a special interest in the growth and prosperity of the Bahamas and of every Bahamian man, woman and child.

 

The Nassau Institute has kindly granted me a few moments in tonight’s programme to share with you my personal thoughts on VAT, and I am extremely grateful for their kindness.

 

Over the months since the announcement of the imposition of VAT I like many of you here tonight have been following the news media, scouring the internet and attending various speaking forums to better understand this new tax proposal.

 

In my research I have learned a few important things:

 

Our nation, has over many decades and successive administrations become excessively burdened by debt. Our national debt is projected to exceed the $5 billion mark by the end of this fiscal year. This is the equivalent of 61.5 per cent of our gross domestic product and nearing a danger zone of 70 per cent debt to GDP ratio.

 

Governments have not been effective in collecting existing taxes or in safeguarding public funds from waste and mismanagement.

 

The 2010 / 2011 auditor general report illustrates some of these collection gaps, identifying:

 

• 5,980 cargo manifests that had not been presented to Bahamas Customs for clearance

 

• $95 million in real property taxes went uncollected taking the total sum outstanding to $541.886 million

 

• $302,866 of unpaid fuel from the Ministry of Works

 

In the 2014 /2015 fiscal budget subsidies have been allocated as follows:

 

• $20 million to subsidise Bahamasair

 

• $20 million in subsidise to Water and Sewerage

 

• $7 million to the Bahamas Broadcasting Corporation

 

... Ok, you get the point.

 

The Bahamas is preparing for ascension to the Wold Trade Organisation by the end of 2014. As a part of this process the Bahamas must commit to dramatically reducing import tariffs. The expectation could be for an average peak tariff of approximately 15 per cent. Down from the current average of 55 per cent.

 

To avoid the potential ill effects of a credit risk rating downgrade the government has determined that a Value Added Tax mechanism would be the best option to help our nation combat the double-edged sword of a swelling deficit and the need to reduce the revenue from tariffs.

 

And on top of that the government believes a swift implementation is required to steer us off the path of economic failure. The increased revenue goal with the implementation of Value Added Tax is $200 million.

 

And so this in a nutshell defines the events that lead to us all being in this room tonight.

 

Early on when the idea of VAT was being mentioned I did not know much about it but I did recognise that for better or worse, this tax was destined to be the most significant adaptation our modern economy has ever seen. I also started asking myself some basic questions like, what is this tax? How does it work? How will it work for us?

 

Like most, I waited and waited for the government to provide full details and education on how this tax plan would work. But as the information was slow to come I started to reach out on my own to learn more.

 

Here is what I have found.

 

Firstly, VAT is a regressive form of taxation.

 

Burden

 

This means that the economic burden will be greater on households with lower incomes. And while our customs duty system was also regressive, the VAT system does not seem to rectify this imbalance. As an offset to the regressive nature of this tax our government has provided for some VAT exemptions including breadbasket items, medical services and educational services. Offering comfort to the most needy in our society through this bare-bones survival kit of exemptions implies to me that VAT planners do anticipate a raising tide of prices that would overwhelm our poorest citizens.

 

And then from there I start to wonder... when these struggling lower income households become burdened with higher prices on their non-exempt consumption what will they do to get by? Take a second or third job? Forego access to modern amenities like electricity, running water and telecommunications? Lean more heavily on the social services network? Or perhaps fall prey to the lure of white collar and blue collar crime?

 

Next, VAT will increase our cost of living.

 

Though the exact amount of this increase seems to become more and more difficult to define as we get closer to implementation, the estimates I have heard range from 3 per cent – 30 per cent and according to a Ministry of Finance official: “On the cost of living there will be some initial impact from the VAT but that initial impact will disappear in a very short time-frame, over six, eight years. That is not long,”

 

Can we as citizens really afford a cost of living increase now? And could we endure it for six to eight years?

 

According to statistics released by the Central Bank of the Bahamas, 95 per cent of Bahamian dollar personal savings accounts have a balance of less than $10,000 and the average balance is $704. Additionally a Ministry of Finance official recently disclosed that around 70 per cent of government payroll is dedicated to salary deductions which service consumer loans.

 

By the looks of it the People of the Bahamas may be just as cash strapped as the government of the Bahamas.

 

On a personal level, as I sift through my household bills I am always left to wonder will there be enough money to get through the month? And the thought of any increase makes me scratch my head and wonder … where do they think this money is going to come from? Will it come from a decision to cut back on my child’s education? Will it come from a decision to shop only in the breadbasket aisles at the supermarket? Or will I have to start making some even tougher decisions?

 

Additionally, VAT will increase the cost of doing business.

 

If you own a business that is just getting by today how will you handle it when your prices increase and your customer volume goes down? Will you make the shift to lower quality products and services? Will you make some tough decisions about which staff to let go? Or will you start preparing your business exit strategy?

 

The other thing about doing business is that VAT will require businesses to divert a portion of their time and resources from usual business activities to take on the new and uncompensated role of tax collector.

 

Most VAT registrants will be required to install new systems and acquire the services of a professional accountant to implement and administer the tax. Additionally the filings will be required on a monthly basis and amounts will be payable at the time the invoice is issued and not when payment is received. How will businesses manage this new expense? Do you think they will absorb it into their profits? Or will they build it into the price? And beyond that, might some businesses even try to evade paying these taxes altogether?

 

These are just some of my findings from my research on VAT. It seems however, that the only sure thing that comes out of each new discovery is even more questions. Regardless of where you live, how much you earn or who you voted for don’t you also have some questions?

 

I will admit I did learn one other thing through this process. And that is that the people of Turks and Caicos were able to successfully convince their government to stall their VAT plans and implement alternative measures to get a handle on their economy.

 

Success

 

From what I can tell a few factors combined to make their effort a success. Firstly they are a UK overseas territory, which obviously does not apply to us. But what I also found out was that when ALL the people came together and spoke in a unified voice they were able to demand that their decision makers move toward alternative revenue generating and debt reducing strategies.

 

Based on this insight I believe that the VAT debate in the Bahamas has the potential to engage and unite our country like no other issue of our time.

 

In the Bahamian context, I believe that the road-map towards alternative economic strategies could include:

 

• Enactment of the Freedom of Information Act so that we can understand how our tax dollars are being managed.

 

• Full enforcement and collection of outstanding taxes

 

• Implementation of further reductions in government expenditure

 

• Develop near-term plans to relinquish under-utilised or unprofitable government assets and corporations

 

• Legislate strict conditions and limits under which future government debt could be approved

 

And if following these initiatives, additional tax revenue is still deemed necessary, I believe that a comprehensive economic impact assessment should be conducted to determine the appropriate economic and tax reform strategies our nation should implement.

 

Fellow citizens, in a time when we are being asked to forego some aspect of our quality of life to sustain our government through this fiscal crisis I believe that it is every citizen’s obligation to ask serious questions about how the financial affairs of their country are being managed and I also believe it is a citizen’s right to receive full and serious answers from its government.

 

Additionally, I believe it is only through the unity of people power that we can move this conversation with our government forward.

 

I know that there are many concerned groups forming and strategising on this issue as we speak. These groups will vary in their objectives, their access to professional advice, and financial resources.

 

However, what if we consider for a moment that the most powerful and important participant in this discourse could be THE PEOPLE?

 

At the moment, the people are in general disconnected, distracted by the daily grind and without adequate information on legislation that will impact their lives.

 

Right now the people need several things to be effective – they need to be focused, they need to be educated about VAT in plain language and they need to be given a forum to express their opinions to their decision makers.

 

To assist in this process of engaging the people on this issue, a group of young Bahamians called Citizens for a Better Bahamas aims to launch a broad based educational campaign on VAT throughout our community streets, through social media and on our webpage: www.citizensforabetterbahamas.org.

 

Our core campaign objective is to launch a petition both on-line and on the street specific to each constituency and addressed directly to each member of parliament. The petition will request each representative to vote NO to a VAT implementation of July 1 and to consider responsible alternatives.

 

We understand that this is a tall order on a tight time-line but we believe it is through activities like these that we will be able to help our decision makers know that we are all here, we are all aware and we wish to be heard.

 

You are here tonight because you are aware and you want to know more. But is your neighbour aware? Or your co-workers? Or your extended family? It will only be through a re-connection of our entire community that we will have our voices heard.

 

Citizens for a Better Bahamas is poised to become that re-connection point for our nation. But we recognise that on this issue there is a need to move quickly and we recognise that we cannot do it alone. We need YOU, EACH AND EVERY ONE OF YOU, we need your time, we need your talent, and yes we need your financial support.

 

We each have a vested interest in the outcome of the VAT debate. If we put aside our differences of background and social status and denomination and political affiliation and bind together as Citizens of the Commonwealth of the Bahamas I believe our voice will be heard and acknowledged by our decision makers.

 

It was Margaret Meade who once told us “Never believe that a few caring people can’t change the world. For, indeed, that’s all who ever have.”

 

Fellow citizens, if you believe in this simple idea I ask that you join us. Together we are better and together we can build a Better Bahamas.

 

November 17, 2013

 

What do you think? Send your comments to pnunez@tribunemedia.net or join the conversation on tribune242