...households would ultimately be better off with value-added tax (VAT) compared to payroll tax

VAT better than payroll tax, Oxford Economics finds

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

While the introduction of value-added tax (VAT) would slow the economy down and result in a “surge in inflation” in the short-term, households would ultimately be better off with VAT compared to payroll tax, according to a new study by Oxford Economics.

The Bahamas Chamber of Commerce and Employers Confederation (BCCEC) and the Coalition for Responsible Taxation commissioned the report.

The report, titled “An assessment of the macroeconomic implications of alternative strategies for deficit reduction in The Bahamas”, examined four models of VAT and two models of payroll tax over a 10-year forecast.

The government has said VAT, which was originally proposed to be introduced on July 1 at a rate of 15 percent, will be delayed and introduced at a lower rate, although the exact date or rate has not been announced.

Among the report’s key findings is that introducing VAT at a rate of 15 percent or 10 percent with a broad range of exemptions would result in inflation of over 6.5 percent in the first year VAT is introduced.

The report said all tax models examined have much smaller differences in growth in the economy in the long-term.

The models include: introducing VAT at a rate of 7.5 percent or 10 percent with a narrow range of exemptions; 10 percent or 15 percent with a broad range of exemptions and payroll tax at a rate of six percent or 12 percent where employees and employers shares the cost equally.

The report noted “all strategies for deficit reduction are estimated to have a broadly similar impact on the supply side capacity of the economy”.

However, the report said introducing VAT at a rate of 7.5 percent or 10 percent with a narrow range of exemptions would result in the highest long-term level of gross domestic product (GDP) growth.

The report also said those models would result in a “permanently lower” inflation rate.

The report admits that some assumptions had to be made regarding the future of The Bahamas’ fiscal policy, including changes in tax rates, the introduction of new taxes and government spending.

The report said introducing VAT at a rate of 15 percent or 10 percent with a broad range of exemptions is more preferable from an equity perspective, but indicated that it is not the most efficient way to address such concerns.

The report also indicated that broad exemptions would reduce the impact on lower income households, but that is a “second-best solution” because the benefits apply to everyone, irrespective of income.

If the government were to compensate directly lower-income households through means-tested personal transfers implemented, this would be a more efficient response to the distributional issues raised by the implementation of VAT, the report said.

In April, Deputy Prime Minister Philip Brave Davis said the government is considering implementing a compensation element to VAT to assist low-income families, similar to New Zealand.

Following the introduction of the goods and services tax (GST) in New Zealand, the government implemented a family tax support system that provided low-income families with wage supplements.

The cash transfer was determined by the size of the household, according to New Zealand VAT expert Don Brash.

No surprises

In an interview with The Nassau Guardian, BCCEC Chairman Robert Myers said the decisions the government makes based on the findings of the Oxford Economics report are critical.

Asked whether the report’s findings surprised him, Myers said, “No. It didn’t surprise us. The numbers that showed big increases to inflation, the reduced numbers of VAT, the payroll tax is actually quite efficient.

“But there are other external issues that impact that like the WTO (World Trade Organization).

“The question really becomes do we have a short-term tax and then a long-term tax, do we try and come to an agreement and fit something in that works in between.”

Myers, who is also the co-chair of the Coalition for Responsible Taxation, said the report was submitted to the government on Tuesday night.

He said the Chamber of Commerce will form a consensus before making its position public.

The chamber is expected to release its position paper on proposed tax alternatives sometime next week, Myers said.

He encouraged Bahamians to review the proposed solution models in the report and form their own opinion.

The report can be read on wakeupbahamas.com

May 22, 2014

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Value added tax (VAT) and Debt Collection

 

Debt Collection Expert Speaks Out Regarding VAT and Debt Collection

 

 

Rory Higgs

There has been a lot of talk throughout the Bahamas recently regarding the implementation of VAT and the collection of taxes. While for the most part the talk and views expressed are from respected individuals who are experts in their respective fields, none of the persons can claim to be experts in the field of “debt collection” in general or “debt collection in the Bahamas” in particular.

Apex Management Services has been in business for over 15 years and is the only debt collection agency in the Bahamas that is capable of handling the full spectrum of debt collection with state of the art technology and resources that are all under one roof.

While there are several debt collection options that include; In-house Collectors, Internal or External Attorneys, Internal Call Centers, External Call Centers and Offshore Call Centers, none of the options are as efficient and effective as a Local Full-Fledged Debt Collection Agency, which can handle matters from start to finish without gaps. 

Some of the inherent flaws that are associated with the various collection options that often substitute for Debt Collection Agencies are as follows:

Internal Attorneys at best would function similar to an external attorney with the difference being that they would be more accessible. At worst an Internal Attorney would also have a focus on other duties, which would diminish the attorney’s role as a specialist with 100% focus on debt collection. Although Day Court is an option, as a matter of convenience, many civil matters, which fall in the Magistrate Courts jurisdiction, are heard in evening court, which would often necessitate odd hour for an internal attorney.

External Attorneys do not operate debt collection agencies; in many instances their main focus is to obtain judgment with little if any interaction with the debtor. Prior to obtaining judgment and after judgment is obtained; attorneys do not have the capacity to provide the care and attention to each and every individual account. In most cases attorneys will bill the client after judgment is obtained and the client is still left to collect the amount of the claim.  Many matters handed to attorneys go uncollected long after the attorneys have been paid.

Onshore Call Centers are on the opposite end of the spectrum from Attorneys, in the debt collection process. While Onshore Call centers are extremely good at interacting with debtors, they have no enforcement capabilities. If a call center operator is dealing with a debtor who is not cooperating or refuses to pay, the call center has no recourse but to send the debt back to the client who will most likely send it to an attorney thus creating a time and process gap, when time is of the essence.

Furthermore Call Centers have no capabilities to locate debtors whose whereabouts are unknown (Skip Trace) even though a large percentage of bad debt matters require Skip Tracing. At best, Call Centers are only suitable for early stage debt not late stage debt.

Offshore Call Centers have the same disadvantages as Onshore Call Centers plus the following added disadvantages.

Communication and Culture - In most cases Offshore Call Centers operate in countries where there are cultural differences that are often subtle but significant. This is compounded when English is not the native language or where patois is predominant.

Geography – Psychologically if a debtor senses that there is some significant distance between the call center operator and themselves they are less likely to cooperate or pay.

Speaking from experience gained working with a major commercial bank that implemented an offshore call center option that failed miserably, Offshore call centers or Offshore Collection Agencies do not work.

The differences that a properly equipped and professional Debt Collection Agency such as Apex makes to the collection process that none of the above options can provide are as follows:

•          Principal has over 30 years of Credit and Collection Experience.

•          Principal is an accomplished Fellow and Member of the largest International Debt Collection Trade Association. ACA International, the Association of Credit and Collection Professionals.

•          Agency has been in operation for over 15 years

•          Easily accessible well-maintained and spacious offices conducive for customer service.

•          Adequate telecommunication technology and operators to handle thousands of calls daily.

•         Auto-dialers, which exponentially increase the calling and communication capacity of the call center.

•         SMS technology which exponentially increases the communication capacity of the call center.

•          State of the art Collection Management Software capable of handling unlimited number of accounts with integrated financial accounting, diary management and many additional features.

•          State of the art Legal Case Management Software

•          24/7 client web access

•          Skip Tracing Database and Skip Trace Network

•          In House Attorneys that are 100% dedicated to debt-collection-litigation.

“International financial institutions, such as the World Bank and International Monetary Fund (IMF), have propagated a conventional wisdom that revenue collection authorities are more effective when they operate autonomously from the state, as a commercialized entity at arms length from government rather than as a department within the government administration”.  (Source: Preconditions for Effective Tax Collection, By – Economic Policy Research Unit, Bergen Norway)

A growing number of U.S. states are expanding their relationships with private collection agencies to settle long-overdue taxes.

Her Majesty Revenue & Collection (HMRC) has outsourced some of its debt collection to external agents. Following a pilot, a notice entitled ‘Modernizing debt collection’ was released explaining that four debt collection agencies will be employed by HMRC to collect an outstanding £140 million of outstanding tax debt. (Source: HMRC sends in debt collectors for unpaid taxes. By-Nick Lodge, Director of debt management and banking HMRC.)

In Spain alone more than 800 companies specialize in collection of outstanding debt, handling a total of 71 billion euro and generating close to 560 million euro for their business. (Source: DBK, “Empresas de Gestion de Impagados)

With an obvious eye on an opportunity to capitalize on the existing situation, a number of over-night debt collection vendors are beginning to surface without any experience or capacity to perform at a level that would be required.

It would be a shame if we as a country succumb to the temptation to award debt collection contracts based on patronage rather than on merit, at such a time when our country’s financial wellbeing is at stake.

March 28, 2014

Media Contact: Rory Higgs  
Phone: 424-0985 (Cell)

Email: rhiggs@apexbahamas.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

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