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

VAT better than payroll tax, Oxford Economics finds

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

No surprises

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

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

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

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

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

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

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

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

The report can be read on wakeupbahamas.com

May 22, 2014

thenassauguardian

Value Added Tax (VAT) and the Bahamian economy

Imf Not Forcing Vat On Bahamas

Tribune242:



The Bahamas’ decision to implement Value-Added Tax (VAT) did not result from the International Monetary Fund (IMF) holding a gun to the Government’s head, a key Ministry of Finance consultant says.

 

Ishmael Lightbourne, former senior partner at PricewaterhouseCoopers (PwC) Bahmas, told dozens gathered at Evangelistic Temple that VAT is just one of many remedies to get the Bahamian economy back on track, given that the national debt has skyrocketed over the past 20 years.

 

The former World Bank director said the Bahamas’ fiscal deficit is five times greater than what it was in 1993. What started out as borrowing to finance capital spending on infrastructure – roads, hospitals and utility plants – has evolved into borrowing for everything from operating public corporations to paying civil service salaries.

 

“If the IMF were in the position to force us to do anything, they would have done so 20 years ago,” Mr Lightbourne said. “There is a great deal of misunderstanding about that. The IMF has made no threats, and does not - and cannot - seek to impose their will on a sovereign government.”

 

He said VAT is the Government’s effort to balance out the unsustainable inequity between what the country brings in as revenue and what it spends.

 

“Governments,” Mr Lightbourne said, “have for the past two decades tried to fill the vacuum left by policies that once allowed foreign investors and developers to build without putting in their own capital investment in roads, utilities, parks and more.

 

“Succeeding governments were left to foot the bill, but expenses were greater than revenue under an increasingly outdated tax system of heavy reliance on Customs duties.”

 

“For the past 20 years, in the absence of major private sector investment, this is what we have done,” he added. “As a result, our debt has more than doubled and growth has been stagnant. So today we can no longer be inactive.”

 

The Government’s series of consultations on VAT continue this month at Government High School on February 19 at 11am; AF Adderley High School on February 19 at 9:30 am; SC McPherson High School on February 20 at 10am; the Bahamas Human Resources Association on February 20 at 11:40 am; Alexiou Knowles & Co. on February 21 at 8:30 am; and BEC on February 21 at 11:30 am.

 

For more information on the VAT implementation, call the Ministry of Finance VAT hotline between 9am and 5pm, Monday-Friday, at 225-7280. Persons can also visit the official Facebook

page at www.facebook.com/vatbah242.

 

February 18, 2014

 

Tribune 242

Ramp-up campaign against value-added tax (VAT) in 2014

Anti-VAT group plans to ‘go grassroots’ in 2014

SCIESKA ADDERLEY
Guardian Business Reporter
scieska@nasguard.com

Come 2014, a local advocacy group plans to ramp up its campaign against value-added tax (VAT).

Since creating Citizens for a Better Bahamas last month, its founder, Tamara Van Breugel, revealed to Guardian Business that its following is growing, with more than 1,500 contacts on its Facebook page to date.  But plans to mobilize the campaign to the streets is set begin in January, beginning with grassroots communities.

She said it is all in an effort to bring awareness to Bahamians everywhere so they can be informed about this issue that will impact the country’s economy.

“It’s been really encouraging because for the most part, we have been focusing on the social media part of our campaign,” she said.

“But we have been getting a lot of positive responses throughout the community so far and I think that a lot of people are concerned about VAT.

“We’re looking to get into grassroots communities, letting young people, and people that aren’t usually in contact with media, access this information so that they can have an awareness of what’s going on.”

In its push for a unified, engaged and informed citizenry, Van Bruegel said VAT would not be the only issue that the group will discuss, although it was the catalyst for starting the group.  Citizens for a Better Bahamas has also started a petition that has been directed to parliamentarians, so that constituents can voice their concerns on the matter.

“We believe that’s the missing component in the government’s structure and that’s the key to creating good governance,” she said to Guardian Business.

“We do have a petition that is directed to each of the 38 members of Parliament.  That is a part of our on-the-ground campaign, getting people aware of the petition and then to sign it.  This is so they can have meaningful dialogue with their elected members.”

Citizens for a Better Bahamas is a non-partisan advocacy group.

The government has proposed to implement a general VAT rate of 15 percent on July 1, 2014 while the hotel sector will be subject to a lower rate of 10 percent.

Officials at the Ministry of Finance estimate that VAT can generate approximately $200 million in revenue in the first year alone, which the government has suggested is key to reducing national debt levels.

Deember 30, 2013

thenassauguardian

Caribbean Blog International

Implementing both value-added tax (VAT) and a contributory National Health Insurance (NHI) scheme cannot co-exist

NHI ‘too much too fast’ given VAT

Head of Coalition for Healthcare Reform says ‘only so much’ private sector can bear, as NHI steering committee moves ahead

By ALISON LOWE
Guardian Business Editor
alison@nasguard.com

As a government-appointed steering committee on National Health Insurance (NHI) ramps up its activity surrounding the potential implementation of the healthcare initiative, a former chamber of commerce president has warned that implementing both value-added tax (VAT) and a contributory NHI scheme cannot co-exist.

Winston Rolle, former chamber of commerce president, and a former head of the Coalition for Healthcare Reform, a private sector group formed to highlight concerns surrounding the possible implementation of NHI prior to the end of the last Christie administration in 2007, said there is a limit to how much the private sector can bear in the form of taxation.

“There were seven or eight guiding principles we’d said we need to look at before we can talk about modernizing our health system and I don’t see where that position would’ve changed.  It still boils down to one, cost, and two, who’s going to pay for it?

“Obviously with the changes that would’ve taken place in this fiscal year, with the business license fee and now with talk of the implementation of value-added tax (VAT), and another scheduled national insurance increase coming up as well now, you are talking about yet another expense that has to be borne by the citizenry and the business community.  There’s just only so much that they can take.  I think it may be a case of trying to do too much too fast,” said Rolle.

Arguing that “putting in place a system that can’t meet the objectives would be just as bad as what you have now”, Rolle suggested that the government has to take into consideration “not only VAT but the whole taxation system” and ensure that those who are required to “pay for this cost have the ability to pay”.

His comments come as Guardian Business understands the government’s steering committee on NHI has begun to meet every two weeks as it attempts to move the NHI agenda forward.

In October, Minister of Health Dr. Perry Gomez said that implementing NHI remains a priority for the Christie administration.  He suggested that an updated costing of the roll out of the initiative would be completed by the end of the month.

Meanwhile, the government is forging ahead with controversial plans to implement VAT at a rate of 15 percent by July 2014, in an effort to address a spiraling debt situation and respond to calls from the World Trade Organization (WTO) to phase out high import tariffs, a key source of government revenue.

Yesterday, sources close to the government’s steering committee on NHI revealed that the group, which was appointed in July of this year, has begun to meet once every two weeks and has already provided a document outlining the terms of reference for NHI to Gomez.

Gomez himself, described as a “passionate advocate for equity in access to healthcare” by sources close to the committee, is said to be keen to see the initiative move forward, addressing the rising cost and inaccessibility of healthcare to many Bahamians.

While the minister had earlier suggested that the updated costing for NHI – how much the government would need to cover the launch and maintenance of an expanded publicly-funded healthcare program – would be complete by last month, Guardian Business understands that this element of preparation is yet to take place.

Guardian Business understands that among those on the steering committee, who include Edison Sumner, president of the Bahamas Chamber of Commerce and Employers Confederation (BCCEC), and John Pinder, president of the National Congress of Trade Unions of The Bahamas (NCTUB) and the Bahamas Public Service Union (BPSU), there are some reservations about the feasibility of implementing NHI given government’s intentions to move ahead with VAT in particular.

It is believed that among the suggestions emanating from the committee are the possibility for the government to implement NHI in phases, with an appreciation for the fact that such a staged implementation – rather than the immediate launch of a comprehensive national health system ­– would more closely approximate what has happened in other countries.

Meanwhile, it has been suggested by sources close to the process that based on the current progress with respect to NHI, the full costing of the initiative may not be completed until next April.

Rolle said he has not been personally informed of any specific advancements in the NHI agenda, but suggested that the government must ensure it seeks the input of the private sector as it moves forward.

“The same parties who were involved in 2007 would want to have sight of and have input into anything that comes up,” he said.

December 03, 2013

thenassauguardian

Caribbean Blog International

Eliminating waste and inefficiency in government spending ...together with a combination of revenue reforms and economic growth ...is the only solution to The Bahamas’ fiscal predicament

Reforms Must Tackle 'Mind Boggling' Waste

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

“Mind boggling” waste in the public sector must be tackled as part of a three-pronged solution to the Bahamas’ fiscal imbalances, a leading businessman asserting that Value-Added Tax (VAT) was not the solution by itself.

Franklyn Wilson, the Arawak Homes and Sunshine Holdings chairman, told Tribune Business he was recently informed of “nine-figure expenditure” by a government-owned utility in the Family Islands that was “just waste”.

The prominent businessman said that eliminating such waste and inefficiency in government spending, together with a combination of revenue reforms and economic growth, was the only solution to the Bahamas’ fiscal predicament.

And, while the Christie administration and private sector appeared to be far apart over the proposed VAT, Mr Wilson said he was “optimistic” the optimum solution could be reached.

He based this on the joint statement issued recently by the Coalition for Responsible Taxation (private sector) and Ministry of Finance, describing it as “one of the most significant developments that have taken place in governance in the country for the last several year”.

Mr Wilson said both sides had agreed inaction on the Bahamas’ worsening fiscal position was “not an option”, meaning there was broad-based support for public finance reform - the only outstanding questions being ‘what’ and ‘how’.

And, with the Opposition Free National Movement (FNM) having indicated a willingness to work with the Government, Mr Wilson said the Bahamas now had “the best foundation” for reaching an outcome satisfactory to all.

However, Mr Wilson emphasised to Tribune Business that VAT was “not the only answer” to a national debt hovering at $5.5 billion, fed by a fiscal deficit projected to be $443 million for the 2013-2014 Budget year.

“VAT alone will not solve the problem,” the Arawak Homes chairman said. “The problem is too deep. We’ve waited too long and got to where we are too deeply.

“We need more government revenues, less government expenditure and more economic growth. We need those three things. No one source can do it.”

The Christie administration is seeking to increase government revenues by $500 million per annum by 2016-2017, with $200 million or 40 per cent of that sum coming from VAT.

The proposed new tax, the centrepiece of its fiscal reform, is expected to generate around $500 million in gross revenues, with roughly $300 million of that figure an ‘income substitution’, compensating for the drop in Customs tariffs/fees.

Noting that VAT was not going to close the Government’s $500 million ‘revenue gap’ by itself, Mr Wilson added: “Those who advocate improved controls on current collections, that’s an answer. That’s not an either/or; it is something that has to be done.”

He praised the Government’s efforts to improve the collection and enforcement of existing taxes, singling out real property tax in particular, despite the complaint from ‘current taxpayers’ about the amnesty programme being overly-generous.

Mr Wilson also ran his eye over suggested alternatives to VAT, especially the sales tax.

“As I understand it, the basic weakness of a sales tax, anyone who has been in Florida and been in so many merchant shops, they say that if you pay in cash they won’t charge you the tax,” he added.

“That tells you the problem with a sales tax: The enormous level of avoidance and evasion.”

Mr Wilson contrasted this with VAT which, by the nature of its ‘input credits’, created an audit ‘paper trail’ right the way through the supply chain that could be checked to determine whether the full amount of tax due was being paid.

Still, Mr Wilson agreed that all tax options had to be looked at for the Bahamas to make the correct decision on reform.

And he also urged the country to set aside ‘partisan politics’ in trying to combat wasteful government spending.

“I could tell you that someone was telling me, pointing out recently, the degree of waste at one government-utility corporation,” Mr Wilson told Tribune Business. “It’s mind-boggling.

“I don’t think anyone has consciously set out to do it. Someone could identify for me nine-figure money spent in one Family Island that was just waste.

“To do something about this, government expenditure, in terms of reducing waste, is something that will take a cultural change, mindset change, and is nothing to do with partisan politics.

“Politicians must shine a light on this thing, and it has to become part of the programme.”

Economic growth, fuelled by increased levels of foreign direct investment (FDI), was the third strand of Mr Wilson’s solution to a fiscal situation where the Bahamas’ debt-to-GDP ratio is steadily approaching the IMF’s 70 per cent ‘danger threshold’.

The Arawak Homes chairman praised the high level of debate over VAT as “unusual for the country”, and described it as both “wonderful” and “constructive”.

“I think the statement by the Coalition from the Chamber of Commerce and Ministry of Finance was one of the most significant developments that have taken place in governance in this country for the last several years,” Mr Wilson said.

The statement, apart from agreeing fiscal reform was needed, also established dialogue between the private sector and the Government, and “certain protocols” for information sharing.

And with alternative reform options being presented in the public domain, he added that the Ministry of Finance could now “respond intelligently” by pointing out weaknesses in these.

“The great thing is there is consensus that something needs to happen, government finances need to be reset,” Mr Wilson said.

“Doing nothing is not an option. That simple point is tremendous progress. This is the future of the country. This is why it’s so important we get this right.

“We have the Opposition prepared to work with the Government. A broad-based private sector group prepared to work with it. Surely that creates the best foundation to give us the opportunity to arrive at the best possible outcome.”

November 26, 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

The Coalition for Responsible Taxation on “phasing in” Value-Added Tax (VAT) over a three-year period in The Bahamas

Tax Coalition: Phase Vat In Over Three Years

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Government should examine “phasing in” Value-Added Tax (VAT) over a three-year period, a co-chair of the private sector’s Coalition for Responsible Taxation warning: “You can’t implement taxes to the peril of the economy.”

Robert Myers, speaking to Tribune Business as the Coalition released its VAT ‘Queries and Recommendations’ submitted to the Government on October 28, reiterated that the “fear” in the private sector about the consequences of tax reform stemmed from the Government’s failure to-date to prove adequate information and consultation time.

Agreeing that the Government could be “100 per cent right” over the direction it was taking with tax reform, Mr Myers said it needed to show this was so by “sharing” all the studies and specifics it possessed.

“This is a fundamental change in this country’s way of doing business,” he told this newspaper. “This is a fundamental change in the way everyone lives and does business.

“Let’s get all the facts on the table and hash it out. There’s no need top throw rocks at each other. We all benefit from the right solution. Let’s make the right decision as a nation.”

The Coalition identified 12 areas of ‘macroeconomic concern’ in its latest missive to the Government over VAT, and Mr Myers told Tribune Business: “First and foremost, you cannot implement taxes to the peril of the economy.

“That is the primary objective. There are just too many examples, in Barbados, Grenada, where their economy was troubled. They tried to resolve it by introducing new taxes, and that sent the economy backwards.”

Mr Myers said Grenada, for example, was now reducing VAT on construction materials and providing incentives to encourage contractors after the tax’s implementation “killed” the sector there.

While there was no evidence to suggest something similar would happen in the Bahamas, he added: “It’s just to say that if this is happening elsewhere, maybe we should take a look at it.”

In the ‘Queries and Recommendations’ sent to the Government, the Coalition reiterated that VAT’s implementation was “a seismic change to the system” that meant both the Government and private sector needed adequate time to prepare.

Restating its previous call for VAT implementation to be delayed for at least 12 months after the relevant legislation, regulations and Tariff Schedule had been released, the Coalition added: “Consideration should be given to phasing in VAT over a reasonable period, for example, three years, to minimise the potential negative impacts of inflation.”

Government minister and Ministry of Finance officials, particularly those working on VAT’s implementation, have suggested that the Bahamian business community’s fears are “unwarranted” and, in some instances, amount to ‘scaremongering’.

But Mr Myers and the Coalition have both pointed out that this has resulted directly from the ‘information vacuum’ created by the Government’s failure to publish the specifics on VAT, including studies on its likely impact that have been done - or are being done - by the likes of the International Monetary Fund (IMF) and Inter-American Development Bank (IDB).

Acknowledging that this had sometimes resulted in “hysteria and one-sided debate”, the Coalition added: “The lack of such information to date has contributed to the paranoia and apprehension of the business community and consumers.”

Mr Myers told Tribune Business: “There is this perception, fear in the marketplace, and you are having the result of not providing adequate time and information.

“Maybe you [the Government] know what we don’t know, but share it. Maybe you’re 100 per cent right. We don’t know, but share it. It’s so frustrating.

“You can already see certain businessmen, the fact that they’re now backtracking themselves on certain projects, is not good for the economy. That creates uneasiness.”

The Coalition, meanwhile, told the Government that VAT’s inflationary impacts, which has admitted itself, could have “consequences” for the Bahamas’ economic recovery.

Calling on the Christie administration to collaborate with the Bahamian private sector “to obtain the greatest possible buy-in by registered businesses and consumers”, the Coalition warned: “The majority of businesses have been experiencing an inability to increases prices in the past few years.

“Gross profit and net profit margins have been reduced following the recession, with no evidence of an ability of consumers to withstand price increases.

“Low net profits or net losses threaten the viability of small and medium-sized businesses.”

Mr Myers praised the Government for containing inefficiency, waste and shrinkage in its spending, and agreed that it needed more revenue to tackle its chronic deficit/debt problems, and the imbalances in the public finances.

But he warned: “To make a mistake and it backfires.... Do you want growth to slip by 2 per cent, 4 per cent, slip into negative growth? I don’t think that’s the desired result.

“Maybe take longer to get into this. No one says you don’t need more revenue, but let’s be measured.”

And the Coalition co-chair added: “We’ve got to make sure this is right for us, and not just right for the business community or right for the Government.

“It’s got to be right for the consumer, right for the private sector and right for the Government. Right in the broadest sense of the word. It’s just not been done. That kind of inclusiveness is not there.”

October 04, 2013

Tribune242

Caribbean Blog International

The Bahamas Government’s focus on Value-Added Tax’s (VAT) ‘medium-term benefits’ is “a farce” ...says Rick Lowe of the Nassau Institute

Gov'ts Medium Term Vat Focus 'A Farce'

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

 

The Government’s focus on Value-Added Tax’s (VAT) ‘medium-term benefits’ was yesterday described as “a farce”, with the private sector and consumers more concerned with what happens on July 1, 2014.

 

Rick Lowe, an executive with the Nassau Institute think-tank, which produced a study showing VAT would have a highly negative impact on the Bahamian economy, said businesses were more concerned about the immediate, near-term effects of tax reform.

 

He was responding to John Rolle, the Ministry of Finance’s financial secretary, who told Tribune Business yesterday that the initial results from an Inter-American Development Bank (IDB) study showed that VAT would positively impact jobs and growth, and reduce inflation, in the ‘medium term’.

 

While Mr Rolle did not define that latter term, Mr Lowe said that in economic terms it usually referred to a duration of five-10 years.

 

He added that this ‘longer term’ outlook also failed to account for the likely immediate inflationary impact of VAT, especially on services, which accounts for 70 per cent of the Bahamian economy.

 

“I think it’s a bit of a farce to say what’s going to happen in the medium term,” Mr Lowe said of the Financial Secretary’s comments.

 

“We’re concerned with what’s going to happen the day it’s implemented, the near and immediate term. What about all these countries where it’s caused increased unemployment, the government to lose revenue, all sorts of economic dislocation?

 

“Why are you talking about what’s going to happen in the medium term, five-10 years away?”

 

Mr Rolle said the IDB study has shown that VAT will have a “positive” impact on the Bahamian economy’s growth and employment prospects in the medium-term.

 

He added that despite the IDB study being incomplete, the ‘preliminary results’ showed the Government’s tax reform centrepiece would also result in reduced inflationary pressures.

 

“While the IDB study is ongoing, we have seen the preliminary results, which attest to the projected positive economic impact of the fiscal reforms (growth and employment over the medium term), and to the reduced inflationary pressures to which the budgetary consolidation would contribute,” Mr Rolle told Tribune Business.

 

“Additional historical data is being added to the economic model, which will allow the researchers to fine-tune their results. Afterwards the results of the study will be published.”

 

Yet Mr Lowe suggested the fact Mr Rolle did not comment on VAT’s immediate impact was telling.

 

“I keep saying to people: ‘Watch the language, watch what they don’t say’. That’s critical. They’re masters at it. It’s quite frustrating, honestly,” he told Tribune Business.

 

“It’s very unfair to the Bahamian citizen, the Bahamian taxpayer. They don’t talk about the immediate cost of living increases that are going to happen.”

 

The IDB used its October quarterly bulletin on the Caribbean to confirm it is working with the Government on implementing VAT in the Bahamas. It said its study on the new tax’s impact on the economy and wider society was only “underway”.

 

“The IDB has been working with the Government of the Bahamas to assist with Value-Added Tax (VAT) implementation,” the Bank’s October missive said.

 

“Using an econometric model, the IDB has provided specific input on the effects of the changes in revenue of the proposed VAT rates and the base on which the VAT will be charged.

 

“An economic impact study that assesses the effect on prices, economic growth, poverty and income distribution is currently underway. Consultations on the creation of the Central Revenue Agency, which will administer the VAT and select the IT system, are currently underway.”

 

October 22, 2013

 

Tribune 242

 

Caribbean Blog International

 

Value-Added Tax (VAT) was approved by the Free National Movement (FNM) and Progressive Liberal Party (PLP) governments... ...The question now is: When will it be implemented?

Pm Accuses Critics Of Vat 'Distortion'

By NATARIO McKENZIE

Tribune Business 
Reporter

nmckenzie@
tribunemedia.net

PRIME Minister Perry Christie yesterday hit back at critics of the Government’s proposed Value-Added Tax (VAT), accusing them of “distortion” and urging the International Monetary Fund (IMF) to publicly back his administration’s plans.

 

“All over the region and the world VAT has been implemented. The IMF has described it as one of the most efficient forms of taxation,” Mr Christie said.

 

“Both governments, FNM and PLP, committed to VAT, and it was only a question of when it would be implemented. We came in and indicated that we would implement it.

 

“We are putting together all of the teams and everything to do with having people educated, and having them participate in discussion on it, so people will become aware of the intention behind it and the effect of it, and how it will be used to better the Bahamas.”

 

His comments came after the Nassau Institute think tank this week released a study entitled ‘The Economic Consequences of the Value-Added Tax for the Bahamas’. The study was produced by David Godsell, a third year PhD student at Queen’s University in Ontario, and a former Canadian Revenue Agency tax auditor.

 

It estimated that VAT’s implementation would result in a net $165 million decline in the Government’s total annual revenues, while the private sector would incur a collective $103 million annually in compliance costs.

 

In addition, the Bahamian economy would see a reduction in per annum GDP of between $322 million and $483 million. The report said studies had shown a tax increase equivalent to 1 per cent of GDP resulted in a GDP decrease of between 2-3 per cent.

 

Hitting back at the report, Mr Christie said: “When I read of the study commissioned by the Nassau Institute, I was not surprised. They have always taken positions that they say are protective of the economy, but in this case we thought the study was predicated on incorrect premises.

 

“One of the things that I know we must put in place is the capacity to answer quickly, through informed persons, who are not politicians, these issues about VAT.

“The call I made today is for the IMF, which comes into the Bahamas, and other countries around the world, to indicate whether you are on course with your economy or are managing your economy in the right way, that they have a vested interest to protect the debate and ensure that factual inaccuracies and political distortions do not violate the integrity of what we are trying to do.”

Mr Christie added: “There are lots of people who, for their own reasons, will distort the truth of VAT and use misinformation to cause people to say: ‘I don’t want it’, and we think that it has a disastrous outcome for a country that is following on really with unanimity in policy, where both governments - past and present - are in agreement with the implementation of a new form of taxation.

 

“For the last five years this has been an issue for us, and now that we have begun the process of implementation we want to ensure that there is honest commentary and that people have an opportunity to hear what it is all about without it being distorted. People have jumped the gun on it, and you have a lot of distortions on what VAT is and what it is intended to do.”

 

September 20, 2013

 

Tribune242

 

Caribbean Blog International

 

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

Caribbean Blog International