Bahamas Blog International: value-added tax

Tuesday, August 12, 2014

What are the Bahamian people saying about value-added tax (VAT)

VAT – Permanent failure for the government?

The subject of value-added tax (VAT) has stirred up quite a bit of discussion on social media and in the public sphere. In fact, the emails which I received were quite enlightening, informative and thoughtful. There were many more questions raised as a result and in this vein I propose to relate some of them today for consideration.

Has the Ministry of Finance been presented with alternatives to VAT? If so, did it do a proper evaluation of them? Will implementing VAT ensure that we improve efficiency and eliminate the potential for fraud with regard to government revenue collection? Why has the government operated with deficit spending for 18 of the past 21 years with the exceptions being 2000, 2001 and 2008? I should add that during the time I served in Parliament (2002 to 2007) this trend continued so I do accept responsibility for not speaking out and challenging my colleagues at the time on it.

To this end, we were either ill-informed or ill-prepared to understand the basic principles of running a government and derelict in our duties because we did not understand that successive governments could not go on spending binges without reaching a day of reckoning which is where we are today.

Why would the current Governor of the Central Bank of Barbados Dr. Delisle Worrell, call VAT an anti-tourism tax and the VAT system in Barbados a mess?

Are there lessons to be learned from Barbados? Merton Moore, who headed the VAT Implementation Unit in Barbados, calls it the “Rolls-Royce of taxes; treat it with intelligence, integrity, care and respect and it is likely to reciprocate”.

Will the government be bringing the VAT experts from Barbados, which is most similar in economy, culture and population to enlighten the public on VAT?

What spending cuts have been put forward as we prepare to implement VAT?

Clearly, all and sundry are aware that the government needs additional revenue. In fact, the government needs enough revenue to eliminate the deficit spending. This figure is close to half a billion dollars.

What mechanisms are in place to collect the outstanding hundreds of millions of dollars owed to the government now by taxpayers? Does anyone truly believe VAT will solve the economic issues that the country faces? Or will implementing VAT buy time with the international agencies to appear as if we are doing something to address our growing debt and deficit spending?

VAT fraud is a major concern for European countries that are well-developed and have a history of compliance. The Bahamas has a large underground economy, thousands of illegal immigrants who live outside of the law and a history of not paying taxes, and up to $400 million in uncollected taxes. How are we going to collect VAT? Further, there is the argument that every other country that has implemented VAT has used it as a slush fund to enable more spending and borrowing. What makes the Bahamas any different given our track record for running up debt?

Successive administrations have taken the easy way out and chosen to stick their heads in the sand and hope that things get better without adhering to the best financial principles for good governance. Political expedience was more likely a driving factor in the decision making and not fiscal prudence and responsibility as our current state of affairs makes the case for this argument.

The government has been lackadaisical and complacent in collecting existing taxes. Moreover, existing elected officials are setting a bad precedent by being blatantly delinquent on their own existing taxes and financial responsibilities to government agencies and corporations. This does not bode well for setting an example in a democracy nor does it help to champion an argument in support of VAT that is palatable to a majority of Bahamians. Implementing VAT without remedying the precursor is a recipe for lawlessness in the future.

Moreover, if the government is serious about tax reform, it would implement the policies of existing tax collection methods as an immediate priority.

In exploring expenditure reduction, has there been serious consideration given to public service mutuals as currently used in the United Kingdom? Also, would energy sector reform potentially raise a large revenue stream on a recurring basis for the government? How can we afford to give public servants increases in salaries when the government is operating at a deficit? In many countries around the world, governments have reduced salaries of public servants to reduce the recurrent expenditure in an effort to close the gap.

We have an indebtedness issue in the Bahamas. Eighty percent of persons with checking accounts in The Bahamas have a balance of under $1,000. Doesn’t this factor into an unsuccessful VAT system reality? Are members of Parliament visiting their constituencies to listen to what the Bahamian people are saying about VAT? If they were, there would probably be a different legislative agenda. Will it be that the $30 to $40 million coming as proceeds of VAT are used through Social Services where a debit card will be issued to persons in need, the pre-qualifier for issuance conducted through Social Services and in a way that is susceptible to politics? If such is forecasted then we know what outcomes to expect. VAT will take at least 7.5 percent out of the economy. Is there a corresponding increase in gross domestic product (GDP) of say 10 percent to compensate? I know that’s a big dream given the facts.

The harsh reality for The Bahamas of our current state of affairs is that our national debt has climbed from $1.1 billion in 1993 to approximately $5.2 billion at June 30, 2014. In the past seven years our national debt has more than doubled from $2.5 billion in 2007 to $5.2 billion in 2014. We accept that this cannot continue.

Further, from 2007 to 2014, the GDP of The Bahamas grew by only $1 billion. This means that in the last seven years we had stagnant growth along with excessive spending. Is VAT going to fix this problem? I put it to the ordinary person that VAT alone will not be enough. Moreover, we can find an alternative revenue stream to VAT, along with radical expense reduction and a real commitment to changing our reckless fiscal ways.

The Bahamian people want to see the government succeed but recognize that this means the government needs to operate with either balanced budgets or surpluses. If the current administration is not prepared to find and implement the solutions, which in my view do not have to include VAT, then it will be at their peril and further plunge this country into an abyss of failure the likes of which can be seen in many countries in the region.

• John Carey served as a member of Parliament 2002 to 2007 and can be reached at johngfcarey@hotmail.com.

August 08, 2014

Tuesday, August 5, 2014

Anyone who believes in freedom and democracy ...should protest and oppose the horrible provision of Section 64 ...in the revised Value-Added Tax (VAT) Bill

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A well-known QC yesterday said he is mulling whether to challenge the Government’s plans to prevent delinquent Value-Added Tax (VAT) payers from leaving the Bahamas before the legislation even becomes law.

Fred Smith QC, the Callenders & Co attorney and partner, warned that if the Government succeeded in getting Section 64 in the revised VAT Bill on to the statute books and enforced it, it would soon seek to apply similar ‘travel bans’ to defaulters on other taxes.

Arguing that Section 64 was akin to something “totalitarian dictatorships” would seek to implement, Mr Smith backed private sector executives who had warned it violated freedom of movement provisions in the Bahamian Constitution.

“I will immediately bring an action for a declaration that it is an unconstitutional provision in the law,” Mr Smith told Tribune Business, when asked what he would do if Section 64 was ultimately included as is in any VAT Act.

“I might even sue beforehand,” he added. “I am considering suing before it comes into effect. I call on anyone who believes in freedom and democracy to protest and oppose this horrible provision.”

As revealed on Monday by Tribune Business, the new Section 64 in the revised VAT Bill would allow the VAT Comptroller to prevent delinquent taxpayers from travelling until they pay off their liabilities in full or agree a settlement/payment plan that is acceptable.

The legislation states that persons owing the Government VAT monies “may not leave, or attempt to leave, the Bahamas for an indefinite or prolonged period of time” - although it does not attempt to specify the duration that would meet this criteria.

“Where the Comptroller has reasonable grounds to believe that a person liable to pay tax outstanding under this Act may leave the Bahamas for an indefinite or prolonged period without paying such tax, [the Comptroller] may] issue a certificate in the prescribed form to the Commissioner of Police and the Immigration director, requesting the Commissioner and director respectively to take such steps as may be necessary to prevent the person from leaving the Bahamas” until due payment is made, the revised Bill states.

Those who attempt to flee the Bahamas without making due payment will face either a $100,000 fine or imprisonment for up to a year.

Section 64 appears designed to prevent foreign owners of Bahamas-based businesses, as well as Bahamians, from running away from their VAT liabilities, but it could well spark legal action of the kind promised by Mr Smith.

Analysing Section 64’s impact as is, Mr Smith said; “Every Bahamian, permanent resident, work permit holder, and their children and families, can be stopped at the border and prevented from travelling - to go on vacation or conduct business - simply because it is alleged that they owe VAT.”

This, he added, was exacerbated by the “vagueness” of the ‘indefinite or prolonged period of time’ wording, and the QC added: “There are no rules or boundaries, and excess and abuse will reign supreme.”

And Mr Smith quickly warned that, if it was successful under VAT, the Government would likely extend the ‘travel ban’ to cover defaulters on other taxes.

‘The idea of being able to stop people from travelling because of alleged arrears of taxation under VAT means the Government can extend this to arrears of real property tax, National Insurance Board contributions, Customs Duties and real property taxes,” Mr Smith told Tribune Business.

“If this legislation applies to one tax, it can apply to any tax, and this kind of dictatorial approach to government will make Bahamians prisoners in their own country. If this clause is permitted to stand, each successive government will extend it to every form of taxation.”

Mr Smith added that Section 64 would effectively make Bahamians and residents “slaves of the taxman, who will be judge, jury and executioner all in one.

“Once they stop us from travelling, does that mean they’ll take us into custody until we pay the taxes? Where will it end?”

Mr Smith added that the Bahamas appeared to be “going backwards as a democracy, instead of forwards”, and warned that freedoms were often eroded by stealth, one stage at a time, if governments were allowed to get away with the first move.

Gowon Bowe, the Tax Coalition’s co-chair, told Tribune Business earlier this week that the restriction contemplated by Section 64 would likely violate constitutional rights relating to a person’s ability to move and travel freely.

He added that it had been “a sticking point” in the initial November 2013 draft legislation, and had now been ‘broken out’ and stated more explicitly in the revised legislation tabled in the House of Assembly last week.

And Mr Bowe, a PricewaterhouseCoopers (PwC) accountant and partner, said imposing restrictions on a person’s ability to travel should be the sole preserve of the judiciary and Bahamian court system, not a tax authority such as the proposed VAT Department.

“I am not sure that will stand constitutionally. It would run against movement and free movement,” Mr Bowe told Tribune Business.

“The focus should be on prosecuting those individuals, with their ability to travel restricted only by the courts. That should be purely a court function; that shouldn’t be the ability of the tax authority to restrict a person’s movement.”

Suggesting that the focus should be on prosecuting VAT delinquents, not taking away their travel and movement freedoms, Mr Bowe said the world was “too much of global society to impose something as outdated as that”.

August 01, 2014

Thursday, July 24, 2014

The value-added tax (VAT) implementation date nears ...despite the widespread lack of understanding about it in the Bahamian society

To Be Or Not To Be - Bahamians Want Answers On Vat

Tribune 242 Editorial:

BAHAMIAN businessmen are becoming more agitated as the date for the implementation of VAT nears with only reassurances from legislators that draft legislation as to what it will mean to them is on its way.

Gowon Bowe, a Tax Coalition co-chair, has urged that the proposed legislation be brought to parliament before it takes its summer recess.

“If we don’t do a lot in the next six to eight weeks,” he said, “we would be right back in the same situation we were facing when we were looking at July 1 as the implementation date, with the business community again saying that they don’t have enough time.”

Mr Bowe said that the business community has still not had “the critical elements. There is no legislation, no regulations on what will be exempt, or what is ultimately going to happen. We need to urge the Government to be proactive.

“There is a concern,” said Mr Bowe, “that time isn’t on our side in that regard. We understand that there was a lot going on in the Budget, but now that is out of the way, this is the most critical time in terms of our fiscal course of action. We have had some casual conversations with the Financial Secretary and he had indicated that they were just waiting on Cabinet now.”

John Rolle, the Ministry of Finance’s financial secretary, recently confirmed to Tribune Business that VAT preparation/readiness efforts were being delayed because they were waiting for “final directions” from the Government.

Government brought two tax experts from New Zealand — one of the few countries that has a good word to say for VAT – to advise legislators on its merits and how to implement it.

Dr Don Brash and Mr John Shewan, both closely involved in the implementation of New Zealand’s Value Added tax in 1985-86, could not emphasise enough the importance of an extensive education programme, both for business and the general public. It was this programme that was the secret of New Zealand’s success. Such a programme would be even more important for the Bahamas, a country, unlike New Zealand, that has no income tax, but relies solely on indirect taxation and trade tariffs. In other words, Bahamians in general are not tax savvy.

“The reason our education campaign was so successful,” said Professor Shewan, “was because there was a commitment to an 18-month educational programme, six months of which was prior to the implementation date, but the most important things happened 12 months after the implementation because there were a series of detailed explanation programmes targeted at all kinds of groups.”

Government, which had planned to implement the tax on July 1 —13 days ago — was forced to delay it to January 1 next year — six months away – because, not only was legislation not ready, but there was not enough time to discuss it with the business community or to educate the public. Soon, if government continues its thumb-twiddling, another delay for implementation will have to be announced.

In their report, the New Zealanders expressed concern “at the widespread lack of understanding of how a VAT would operate in the Bahamas”. They were also “concerned at the complexity of the VAT proposal as currently envisaged (obviously government’s first draft on their arrival). This complexity would lead to high compliance costs and potentially extensive abuse of the system,” they predicted. Hopefully, this complexity has since been simplified. The state of business in the country today can certainly not absorb high compliance costs.

It was explained that VAT was urgently needed, not only to expand government’s tax base, but also for the country to be eligible to join the World Trade Organisation (WTO). Having had to reduce its original 15 per cent tax proposal to 7.5 per cent, the government maintains that it cannot afford to also reduce Customs duties. If joining the WTO is its objective, then Bahamians can count on the VAT rate being increased so that the Bahamas – a non producing country — can qualify for WTO membership. Qualification means that all Customs duties have to be abolished. Government, while explaining VAT, should also explain in detail the advantages of the Bahamas having WTO membership.

Several months ago, Social Services Minister Melanie Griffin outlined how our sluggish economy has hurt those in the lower income brackets – the group with the potential of being the most affected by VAT. With the September opening of schools, Mrs Griffin said, there was a substantial increase in demand on Social Services to feed and equip children for school. At the time, she was being interviewed she said that 1,606 out of just over 3,500 children had requested uniform assistance.

There was also more demand for food stamps, a relief system that is growing, she said.

Mrs Griffin appealed to corporate Bahamas and private citizens to partner with government to assist children in need. Recently the 58-year-old Ranfurly Home for Children appealed for financial aid. Mrs Griffin said government would assist to make certain that the Home, which has cared for so many children sent by Social Services, would not have to close. She also said that her Ministry will have to step into the breach to assist those who might be severely affected by the implementation of VAT.

A few days ago, we were discussing VAT with a businessman who said that what his company had traditionally set aside as donations for the various charitable organisations and student scholarships would now go to VAT. This shift in donations will put an even heavier strain on Mrs Griffin’s Ministry. In other words VAT will force the public sector to curb its generosity.

No matter how we look at it, VAT is going to create a vicious circle, and regardless of how it is introduced, Bahamians will not be satisfied until the government demonstrates that it too is making substantial cuts in its unnecessary spending. Bahamians are not going to pay taxes to give government a licence to spend foolishly.

July 14, 2014

Tribune242

Sunday, June 8, 2014

Premature Value-Added Tax (VAT) rate increase announced

Vat Rate Rise 'Criminal' If No Compliance

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

June 04, 2014

Friday, June 6, 2014

The new value-added tax (VAT) proposal

Budget 2014/2015: Answering the questions on VAT

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

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

The government’s position

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

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

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

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

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

The impact of VAT on government finances

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

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

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

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

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

Are there any winners or losers?

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

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

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

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

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

The other important details

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

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

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

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

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

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

June 03, 2014

Monday, June 2, 2014

The low rate/ few exemptions value-added tax (VAT) model

U.S. study looked at VAT with ‘attendant tax cuts’

By ALISON LOWE
Guardian Business Editor
alison@nasguard.com

A range of “attendant tax cuts” were assumed to accompany the implementation of value-added tax (VAT) when it was recommended by U.S. economists commissioned by the government to examine the best possible approach to tax reform, Guardian Business has learned.

In addition, the economists, Compass Lexecon, also supported the contention of groups such as the Coalition for Responsible Taxation and others when they recommended that the government must strengthen the existing tax system, particularly the administration of real property tax, as a key component of its overall reform plan.

In an email exchange with Guardian Business, David Kamin, an adjunct professor at New York University’s School of Law and a key participant in the formulation of the study produced by the government, discussed the objectives, assumptions and findings of the study, which the government has pointed to as further support of its plans to introduce VAT.

Kamin confirmed that the group found value-added tax (VAT) to be the preferred method of tax for The Bahamas, proposing a combination of VAT and a varying range of tax cuts in order for the government to raise a level of revenue that would not choke off economic activity.

He said: “We analyzed what revenue should be generated by the VAT in combination with related tax cuts. Here, we warned that there’s a balance between 1) the long-term revenue needs of the government and positive long-term economic impact of deficit reduction, and 2) the short-term negative impact that fiscal consolidation is likely to have on the economy.

“We then analyzed the VAT and attendant tax cuts producing 1) over two percent of GDP (like the government proposed last year); 2) 1.5 percent of GDP, and one percent of GDP.

“In striking this balance between long-term revenue needs and the short-run impact on the economy, we recommended a VAT and attendant tax cuts that would produce less revenue on net than the government had proposed last year - consistent with a VAT rate in the range of five to 10 percent (depending on the breadth of the base and size of related tax cuts). And, we further recommended that this be backed up with a fiscal rule to bolster credibility.”

On Wednesday, during the Budget Communication 2014/2015, the prime minister announced that the government is planning to implement VAT on January 1, 2015, at a rate of 7.5 percent, with “much fewer exemptions” than initially proposed, and no “wide-scale duty reductions”.

The decision to offer fewer exemptions has won applause from the business community, who felt it would make administration of the VAT more simple, as suggested by New Zealand experts Don Brash and John Shewan, but the announcement that there will be few duty reductions has been more controversial.

Coalition co-chair Gowon Bowe has argued that findings of the study commissioned by the private sector grouping suggest there will not be a “radical” price spike under a VAT with few duty reductions, while some retailers and the president of the Bahamas Contractors Association fear a major knock to consumer demand from the plan.

As to what duty reductions were assumed under a VAT with 7.5 percent if the revenue target was to be achieved, Kamin said: “We were not asked to calculate (and didn’t calculate) the duty reductions that would be consistent with our recommended net revenue target for a VAT with a 7.5 percent rate. Since both the potential breadth of the VAT tax base and the duty reductions were shifting as our report was developed, we focused our recommendations on the net revenue that we believed appropriate.”

When selecting VAT as the preferred method of taxation for The Bahamas, Kamin noted that what is involved in administering a VAT, as opposed to other taxes, was of particular relevance to the consultants. Kamin is a specialist in tax law and policy; he served as adviser, to Peter Orszag, director of the U.S. Office of Management and Budget, and helped to formulate policy for President Obama’s first two budgets.

“The study considered whether the current tax system in The Bahamas was in need of reform, concluding that it is and that a VAT should be adopted in light of The Bahamas’ significant revenue needs, the expectations of the markets and the current relatively narrow and inefficient tax base,” he said.

“In arriving at this conclusion, we looked at a number of different alternatives, including payroll taxes, corporate income taxes, individual income taxes and the VAT. Based on what is known of these different tax systems, we concluded that a VAT is superior in terms of efficiency and, especially, administrability as compared to these alternatives.

“We also recommended that The Bahamas endeavor to strengthen parts of its existing tax system, like the property tax. To be clear, this analysis considered the effects of these taxes in terms of efficiency, fairness and administrability.”

Prime Minister Perry Christie spoke of the Compass Lexecon report during his presentation on the Budget 2014/2015 last Wednesday. He noted the group’s favoring of the VAT, as well as how the study also concluded that the government implement a fiscal rule to bolster its “credibility” in the budgeting process. However, Christie said that the government determined that such a rule, which would require the government to legislate a maximum debt to GDP and minimum annual level of reduction in the debt to GDP ratio removed a level of “adaptability” that the government sees as important to its ability to make financial decisions going forward.

Meanwhile, contacted for comment on the government’s proposed tax plan, New Zealand tax expert Don Brash said that he and Shewan were “very pleased” to hear that it appears that the government may have elected to pursue the “low rate/ few exemptions” VAT model they recommended during their recent visit to The Bahamas, but declined to comment on the government’s decision to do so while largely retaining duty rates at the current levels.

June 02, 2014

Thursday, May 22, 2014

...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

Sunday, April 6, 2014

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

Wednesday, February 19, 2014

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

Tuesday, December 31, 2013

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

Wednesday, December 4, 2013

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

Wednesday, November 27, 2013

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

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

Monday, November 25, 2013

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

Tuesday, November 5, 2013

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