What will be the impact of Value-added tax (VAT) on the cost of goods and services in The Bahamas?

Preparing for VAT

The Nassau Guardian Editorial

The government has set July 1, 2014 as the date for the biggest change to the Bahamian tax system in recent memory. It plans to bring forward a value-added tax (VAT), to create a central revenue service and to cut many customs duty rates.

To inform the people of what will take place the government has published a white paper on VAT that is available for all to see on its website.  The government has also pledged a significant public relations campaign to help educate the Bahamian people on the proposed new tax.

The government will have challenges with this education effort.  In its white paper, it admits that VAT is one of the more complicated taxes.  It involves multi level taxation up the chain of production and distribution and it also includes rebates for some.

The Bahamas has challenges with education.  The public school system in New Providence has an average in the national exams somewhere not too far from an F.  The technical language of the white paper is inaccessible to the overwhelming majority of our population.

Sweeping tax reform requires the understanding and consent of the people.  If the people think something they don’t understand is being forced on them, and it leads to a higher cost of living, the political party that did the deed will pay at the polls.  The Progressive Liberal Party (PLP) administration should know this.

While one challenge for the administration will simply be breaking VAT down for regular Bahamians to understand, there are some fundamental questions that will be asked by those who do understand.  These are questions the white paper does not answer.

It remains unclear how the imposition of VAT will impact the cost of goods and services across the board.

In fact, the white paper acknowledges that the government is unable at this time to indicate comprehensively either way.

“The effect of VAT on prices will vary as between goods and services and, within the goods category, the effect will depend on the current taxation of individual goods.

The final impact on the price of goods will depend on the extent of reductions in import tariff rates flowing from accession to the WTO,” according to the white paper.

The government attempts to reassure the public by saying that agricultural, food and certain other products that currently benefit from duty free status under the Tariff Act will also be exempt from VAT.

“Similarly, the services also proposed to be exempt from VAT, such as health and education services, etc., should experience no direct change in price under a VAT system,” the white paper adds.

However, Bahamians will simply want to know how much more expensive items at the grocery store will be as a result of this proposed change.  How much more expensive will clothing and electronics be?  Is there a tax for using the already expensive services of lawyers?  Will there be a 15 percent tax at restaurants on top of the 15 percent charged for gratuity?

To answer some of these questions, the government would have to announce its full range of cuts to customs duties.  Other answers may be so unacceptable to the people that the government may have to alter its position.

When the official education campaign begins, business owners and professionals will have many questions for the government and its representatives, as will concerned citizens who can understand the magnitude of the change.  It is necessary for the government to ensure that it works out the answers to the obvious questions Bahamians will ask before it starts the talking and education tour.

Prime Minister Perry Christie led the government’s communications effort on gambling. He was not well versed on the subject.  He confused the issue and said things that were contradictory.  The people noticed and rejected the referendum – an initiative the governing party hoped Bahamians would support.

Government bureaucrats and the PLP should not just assume Bahamians will accept VAT because international advisory agencies said we should try it.  The people have to think it is better for them and the country.  They know little of the details of this move now.  If this tax reform is to succeed they must know more and agree to it by the implementation date.

August 31, 2013

thenassauguardian

The Bahamas, being a no-direct-tax destination ...and dependent on indirect taxes ...needs to be aware of the consequences of higher taxes - says John Bain - Managing Partner of UHY Bain & Associates

Bahamas Warned Not To Increase Tax Burden

The Bahama Journal



A chartered accountant is warning the government to hold the line on indirect personal taxation as a study of 26 countries revealed what its authors called “the yawning gap” between the ability of high and low tax economies to attract and retain talent and investment.

The study, conducted by UHY, the international accounting and consultancy network with affiliates in 81 countries, says the broadening gap has been driven by struggling European economies raising taxes to plug gaps in budget deficits while emerging economies like BRIC nations (Brazil, Russia India, China) are attracting more professionals – and investment.

UHY warns that higher taxation is making European economies even less competitive relative to rival low tax economies.

Managing Partner of UHY Bain & Associates in The Bahamas office John Bain warned that while The Bahamas was not included in the year-long, 26-nation study – Bain & Associates was just named to the global network last month – the country would do well to heed the results that clearly showed populations and investment followed the path of attractive personal taxation.

“The Bahamas, being a no-direct-tax destination and dependent on indirect taxes, needs to be aware of the consequences of higher taxes,” said Mr. Bain.

“The population is highly taxed indirectly, which results in the burden of taxation being skewed unfavourably towards the poor and middle class. The Bahamas government has promised a revamping of its taxation system. As some of the residual income of some European countries is astounding, this report and the comments by the country partners should be considered at the discussion phase of taxation reform in The Bahamas.”

While The Bahamas has no direct income tax and prides itself on being a tax-neutral country free of estate, personal income, capital gains and other forms of taxation, Bain estimates that the indirect taxation from Customs duties and a cornucopia of fees amounts to between 30 per cent and 40 per cent, placing this nation in a precarious position for holding on to talent.

According to the six-page UHY release issued yesterday with details of the study, the average taxpayer in a BRIC country earning $25,000 a year will keep 85 per cent of their salary.

Someone earning $200,000 will keep 75 per cent.

Higher tax countries, including those in Western Europe, are taking upwards of 50 per cent of high income salaries.

Russia, with a flat tax rate of 13 per cent across the board, was the most consistently low-tax economy while Italy and France were in the highest taxing economies for every pay scale with France taking as much as 75 per cent of incomes over $1.3 million.

“The low tax economies, not all of which are developing economies, have been able to maintain or cut their tax rates over the past year,” said UHY Chairman Ladislav Hornan.

“Traditionally, the EU (European Union) has been able to offset the effect of high taxes by offering a wide range of public services. However, tax rises in some EU countries have come hand-in-hand with sweeping cuts to public services.”

Two of the countries imposing the five highest tax rises between 2011 and 2012 for those earning $200,000 or more were the US and France. Russia’s low flat tax rate means a taxpayer earning $250,000 will take home $80,000 more per year than a worker making the same amount in Italy.

“The first response to the impact of taxation on decision-making is concern about investment,” said Mr. Bain.

“But over the long run, the more significant impact may be a brain drain with taxation driving talented professionals, especially those who are relatively young and mobile, to jurisdictions with more appealing taxation translating into more attractive income. There is a tipping point in everything and we have to be very careful in The Bahamas to take results like this into account because increases in taxation that seem to provide a temporary breather can be a long-term threat to the very economy we are trying to build. Conversely, lowering the rate of taxation may be among the smartest moves we can make to retain talent and attract investment.”

Bain & Associates, forensic accountants, was named The Bahamas affiliate to UHY in October, joining independent firms that together represent 6,800 staff in 81 nations.

8 November, 2012

Jones Bahamas

...several members of the Bahamas Christian Council (BCC), and a number of other prominent pastors have become “sensitized” to the idea of how taxes generated from a legalized numbers industry could benefit The Bahamas ...says Reverend Philip McPhee of Mt. Calvary Baptist Church...

Pastors ‘sensitized’ to gambling

Contributions of numbers houses highlighted

By Royston Jones Jr.
Guardian Staff Reporter
royston@nasguard.com

Despite the Bahamas Christian Council being “diametrically opposed” to gambling, several of its members, and a number of other prominent pastors have become “sensitized” to the idea of how taxes generated from a legalized numbers industry could benefit The Bahamas, Reverend Philip McPhee of Mt. Calvary Baptist Church said yesterday.

On Tuesday, McPhee organized a meeting between ‘We Care’ — a coalition of web shop owners — and a group of about 20 local pastors, including three members of the Bahamas Christian Council.

“We got a very positive input of what the web companies are all about, what they are doing and how they contribute in many ways to the benefit of the country,” McPhee told The Nassau Guardian.

“A lot of us were not aware of those contributions.  One web company has given over $1 million to fund various regattas and cultural events such as Junkanoo, and has sponsored many summer programs, feeding programs and clothing programs.

“A lot of these men have been very active in giving a lot to sustain other various programs.  Those were articulated to the pastors which brought about a sense of sensitizing.”

The government has promised to hold a referendum on legalizing the numbers business before the end of the year.

However, Bahamas Christian Council President Dr. Ranford Patterson said in May that if a referendum is held the council would do everything in its power to make its opposition known.

But yesterday, McPhee said the Church could not remain ‘stagnated’ on something that takes place on a daily basis, which could prove beneficial to the country.

“The purpose of the Church is to inform, alert and to keep its membership on the cutting edge of what we ought to be doing as Christians,” McPhee said.

“We stand totally against the whole philosophy of gambling but the whole aspect of it is, if the country is benefiting from national insurance [contributions] from these companies and they are getting other benefits, then something needs to be done so these people are looked at as major contributors to the development of our country.”

CEO of Island Luck, Sebas Bastian, said on Wednesday that representatives from the FML Group of Companies, Asue Draw, Island Game and Island Luck will invest around $1.5 million to educate Bahamians on industry related issues, and on various community-based initiatives over the next few months.

McPhee encouraged ‘We Care’ to meet with the other leading pastors in New Providence and on the Family Islands to make them aware of the potential benefits of a regularized industry.

“The referendum will [involve] the entire Bahamas,” he noted.  “So if the We Care group wants to be successful, they will have to meet on every island to inform all pastors, and other interested people on what their role and position is.”

Jul 06, 2012

thenassauguardian