By NATARIO McKENZIE
Tribune Business
Reporter
nmckenzie@tribunemedia.net
AVOIDING any adverse impact on the Bahamian tourism and financial services industries will be the “real challenge” for policymakers in implementing a Value Added Tax (VAT), a financial executive said yesterday, while also noting that the business culture “will need to change”.
Kevin Burrows, senior vice-president of CFAL, during a CFA Society of the Bahamas luncheon yesterday, said: “The Bahamian economy is predominantly service driven, and the real challenge for policymakers in implementing VAT to achieve the economic and fiscal goals will be how to avoid any adverse effect on tourism and financial services, which will fall under VAT.
“The VAT in Barbados, for example, was applied at a concessionary rate of 7.5 per cent as compared to the full 15 per cent on their hotel accommodations as a concession to their tourist industry. The Government will need to decide carefully which goods and services will be zero-rated and therefore exempted from VAT, just to make sure the system doesn’t become regressive or penalise those at the lowest level of income.”
Mr Burrows added that while VAT has emerged as the front-runner to supplement or replace Customs duties, the Bahamian business culture will need to change if the Bahamas is to move towards its successful implementation.
“Bahamian business culture will need to change; that will need to be transformed,” he said.
“Compared to Barbados, which already had a strong tax framework and a history of paying taxes, this country is really starting from the opposite spectrum in terms of tax familiarity and tax compliance.
“Ultimately, we are going to have to force compliance at a business level by tying it to business licenses. We have to be rigorous and impartial in the execution of the law,” said Mr Burrows.
“The Government is going to have to address organisational issues, set up a whole new tax office, train people and decide how much lead time will be necessary to inform the general public about this transition.
“The companies that are going to be involved in the VAT administration are going to face significant invoicing and bookkeeping requirements. They will have to coordinate their filing and payment requirements, and ultimately be subject to VAT audits, deal with refunds and penalties if they don’t give the right amount,” said Mr Burrows.
He added: “Only persons or businesses of the size or capability to adhere to good record keeping - and a lot of countries measure that by the annual gross sales - will be included in the VAT system. In Trinidad and Tobago, you have to have an annual turnover of 200,000 T&T dollars or approximately $30,000 US dollars.”
Speaking to the need to move towards a new system of taxation, Mr Burrows noted: “Our government speeding is outpacing our tax revenue by a greater and greater amount, especially since 2008. In other words we have been running increasingly large deficits and having to borrow the difference.
“Our tax base is fairly narrow and leaves out the service-based economy. Really, that’s one of the key issues with the way we are currently set up. If we can broaden the tax base, we can tax everyone at a lower rate and still provide the Government with the revenue it needs to balance the books and even start paying down on this mountain of debt that we have accumulated.”
He added: “The Bahamas has entered a number of trade agreements. We are moving towards full membership in the World Trade Organisation (WTO). The Bahamas has an average import tariff rate of 33 per cent, whereas most countries that acceded to WTO had rates between 9 and 20 per cent.
“Our high duty rates will most likely be viewed as a barrier to trade by these bodies, and they will start forcing us to bring those rates down or eliminate some of those tariffs completely.
“VAT rates generally vary between 10 and 20 per cent, and the final rate we select is going to depend on how much revenue needs to be raised in total and how much is required to replace other taxes.
“When we approach this and try to figure out what our rate should be we are going to have to look backwards and see how much revenue we need and how much we are going to lose by phasing out the import duties,” said Mr Burrows.
He said that in implementing a new tax system, the Government still needs to be vigilant in dealing with spending. “Getting the tax side is one part of the government equation and we have to have that similar emphasis on spending restraint,” said Mr Burrows.
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