VAT like 'changing the Devil for one of his disciples'

Wednesday, August 28, 2013

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Value-Added Tax (VAT) was yesterday likened to “swapping the Devil for one of his disciples”, a prominent businessman arguing that a 15 per cent levy on all services would be “a drastic price increase”.

Rick Lowe, an executive with the Nassau Institute, and director/operations manager at Nassau Motor Company, told Tribune Business that Bahamians - especially companies in the services sector - were “in for a big surprise” when VAT was introduced on July 1, 2014.

He argued that VAT was little different from the existing duty-based tax regime, meaning it was regressive and its burden would fall equally as heavily - and unfairly - on society’s poorer elements.

“They’re just changing the Devil for one of his disciples,” Mr Lowe told Tribune Business. “I think they’re in for a big surprise, and 15 per cent on all services - or most services - is a dramatic or drastic increase.

“I understand their [the Government’s] predicament, but the taxpayer did not put the Government in this predicament.

“It’s all very well holding Town Meetings and saying the business community is not supposed to increase prices, but that’s not where the discussion needs to be.”

John Rolle, the Ministry of Finance’s financial secretary, earlier this week told Tribune Business that while VAT would lead to some “price adjustments” (meaning increases), these would “definitely not be as drastic” as many in the private sector fear.

Mr Lowe, though, said there “two parallel discussions” that needed to be held on VAT’s cost of living impact - one on goods, the other on services.

When it came to physical products, Mr Lowe said that if the Government reduced Customs duties simultaneously with VAT’s introduction, and by the same proportion, it was possible the new tax’s impact on prices might be minimised.

Yet when it came to services, he noted that companies, households and individuals would be liable to pay VAT on their phone, cable TV and electricity bills.

The new tax would also potentially be added to attorney, accountant, plumbing, electrical, car repair and beauty salon bills, he added, although businesses with an annual turnover of less than $50,000 would not have to register, and collect, VAT.

“If they’re theorising is correct, that they are going to reduce the duty so that the VAT is hidden, all well and correct,” Mr Lowe said. “In theory, prices are not supposed to rise any higher than they are now via inflation.”

But, supporting his case on services, Mr Lowe showed Tribune Business some hypothetical calculations for what a 15 per cent VAT would mean for the monthly price of basic services.

* Telephone: $40 bill would go to $46

* Cable TV: $90 bill would go to $103.50

* Electricity: $400 bill would go to $460

* Car service: $350 would rise to $402.50

“Those are really drastic increases, and that’s what we need clarification on,” Mr Lowe said, noting how VAT could be passed on to consumers, eroding household disposable income and living standards.

“It’s going to be a major adjustment and it will slow the economy even more, there’s no doubt about that. Study after study shows that.

“It’s important that the Government becomes more transparent with the details, the nitty gritty. Maybe they want to tell you a little bit at a time, but time is running out.

“We’re talking less than a year away. We don’t know what to advise our computer software people as to what we need, we don’t know what to advise our accountants on what we need for VAT.”

Mr Lowe’s analysis of VAT’s impact on services was supported yesterday from a ‘big picture’ perspective by Raymond Winder, Deloitte & Touche (Bahamas) managing partner, who said prices in this sector of the economy would increase “for sure”.

On the goods side, Mr Winder said it was impossible for the Government “to dictate what the merchants are going to do” when it comes to prices under a VAT regime.

Yet he agreed that if Customs duties were reduced in line with VAT’s implementation, and to the same extent, it was possible the impact from tax reform would be “offset if there’s that balance, that equilibrium”.

ohdrap4 10 years, 8 months ago

I rarely agree with what this writer has to say. I believe the thinktank he is a part of is always trying to make me poorer.

This time, the govt is trying to make me poorer. I really do believe that there will be an increase in price of goods, how much depends on the willingness of the govt to reduce customs duties.

What I don't understand is this: with customs duty, the govt gets his money upfront, while with vat, the govt collects a reduced customs duties and collects vat WHEN AND IF the goods get sold. So it seems to me that revenues will drop in the short term.

You don't give up certainty for uncertainty so I think we will be flogged with customs duty plus vat.

As for the tax on services, yes all the examples this writes proposes are currently not taxed, so we will be poorer and have less discretionary income.

bahamianborn 10 years, 8 months ago

VAT tax is charged at point of entry on all imports exactly that same as import duties. Importers will now have to come up with duty and VAT taxes when their goods arrive in the Bahamas. Government needs to come clean on exactly what tariffs will be reduced and by how much so that businesses can plan ahead for these major draws in their cash flows.

tribunespeaker 10 years, 1 month ago

Fundamentally, I do not believe that the assumption that a government taking money from the people is inherently wrong. This is an ideological stance, and experience has taught me that it is difficult to apply logic when we are working from different axioms.

To summarize my stance brieflyhttp://www.casualcollision.com/profil...">, I would rather supply the courts, police, and military with a mandatory tax that cannot be cut off, than have the judges and the enforcement of their rule paid from private coffers. To this end, taxes are a necessary requirement to ensure the safety of the wholehttp://www.kidsgamehouse.com/profile/...">.

There are lots of ways to fight taxes, but illegal approaches are not ones I would take. Nullifying a tax evader by jury, possibly. Lobbying for lower taxes, or having them abolished? Absolutely. But fraud? Not so much.

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