By NATARIO McKENZIE
Tribune Business Reporter
nmckenzie@tribunemedia.net
THE Government is proposing to implement a Value Added Tax (VAT) on July 1, 2014, at a rate of 15 per cent, the Minister of State for Finance said yesterday, adding that the hotel industry would be subject to a lower 10 per cent rate.
Michael Halkitis, speaking at the first session of a ‘Meet the Minister’ series hosted by the Bahamas Chamber of Commerce & Employers Confederation (BCCEC), said: “Within the proposed package of tax reforms, it is recommended that a VAT be introduced, as of July 1, 2014, at a rate of 15 per cent, consistent with VAT rates generally charged elsewhere.
“Such a VAT rate, in combination with the other reform proposals, would ensure that Government will have access to adequate revenues streams for the future.”
The Government plans to eliminate the 10 per cent hotel occupancy tax rate, replacing it with VAT at the same rate. A 10 per cent VAT rate will also be applied to all hotel food and beverage sales.
And, in a bid to ensure VAT will have a ‘neutral’ impact, meaning there will be no increase in the tax burden, Mr Halkitis said Excise Tax rates will be reduced in proportion to the 15 per cent VAT rate.
Among products subject to an Excise Tax rate are automobiles, tobacco and petroluem products, all the Government’s high-yielding revenue items, which were moved under this heading to protect them from World Trade Organisation-induced tariff cuts.
Prime Minister Perry Christie yesterday tabled the Government’s White Paper on tax reform in the House of Assembly, which proposs to exempt companies with an annual turnover of $50,000 or less from having to pay VAT.
“We are going to have extensive consultations with the public on this. We want business people to buy in. We don’t want to have a situation where the cost of living is going to increase,” said Mr Halkitis.
“We think it’s an important part of the overall financial process. We benchmarked other countries around the world and looked at our economy. Some countries charge more. Not many countries charge less. We didn’t want to go too high. We wanted to use something that is in use in other jurisdictions.
“In our discussion, we will determine whether that should be higher or whether it should be lower. Nothing is set in stone. We wanted to put some of our thoughts out there and get some feedback. Certain industries, for example, the tourism industry, might be treated a little differently,” said Mr Halkitis.
“For competitiveness reasons, it is proposed to eliminate the hotel occupancy tax and to subject hotel accommodations to VAT rather than subject them to both taxes.
“This will allow hotels to claim VAT input credits on their purchases of materials and supplies, and will be consistent with the current Hotels Encouragement regime.
Hotels will benefit from lower compliance costs, and the Government will benefit from administrative economies of scale,” the Minister added.
“However, again for competitiveness reasons, it is proposed that hotels be subject to a VAT rate equal to the current hotel occupancy tax rate of 10 per cent. Similarly, given the large contribution of hotels to economic activity, it is proposed that food and beverage sales in hotels be subject to VAT at the same rate of 10 per cent.”
Mr Halkitis added that all businesses will come under VAT, but only those with an annual intake of $50,000 or less. “We are proposing that businesses with an annual turnover of $50,000 or less are exempt. If you do that you end up with about 3,200 business that would be registered. We think that number is manageable. We should be able to administer that if you put in the proper system,” said Mr Halkitis.
As to the fate of Customs Duties, Mr Halkitis said: “It is generally acknowledged that, based on the experience of other acceding countries, pending membership in the World Trade Organisation (WTO) will require reductions in Bahamian bound tariff rates. The final determination of those import tariff reductions will be subject to the ongoing WTO access negotiations.
“However, the excise taxes that are currently imposed on selected products, namely tobacco, petroleum, vehicles and certain luxury items, will be unaffected by WTO accession as, by law, they are imposed at the same rate on both domestic production and imports of those products.”
He added: “Given the relatively high rates of excise tax imposed on a number of excisable items, it is proposed that all excise tax rates be reduced by an amount just sufficient to counteract the imposition of a 15 per cent per cent VAT on those products. As a result, the total tax payable on excisable products would remain unchanged.
“The Government believes that its programme of tax reform, when fully implemented, will result in considerably greater and more efficient revenue collection, the proceeds of which will better equip the Government to meet the increasingly complex financial needs of our nation. More fundamentally, it will bring into being a new system of taxation that shares the tax burden more fairly and equitably,” said Mr Halkitis.
Comments
TalRussell 11 years, 2 months ago
Comrades the PM has come up with a new and what they think may be an ingenious tool for the government to raise additional tax revenues. And, then they can take the peoples money go on like a drunkard sailor's spending spree of ill thought out and ill timed projects. Throw-in creating one whole bunch of new cushy accounting and management political-tainted government departments, staffed with100% subsidized workers benefits jobs, and social programs and you get the picture where they are really headed with this VAT thing.
Take a closer look at the bleak economic problems taking place all over Europe and it should be sufficient to scare the hell out buying into anything that resembles or smells like a government Value-Added-Tax (VAT).
The PM wants you to believe that the VAT which he wants added to most anything from getting a haircut, paying your phone bills, right down to the cost of funeral expenses is not going to be more of a tax burden on the average Bahamian than the rich? Funny he should say this, when it could end up with tax payers aggregate tax burdens going-up a whopping 40%?
Comrades for damn sure it will create a much larger government with protected benefits and paychecks for the hiring of 100's new workers they will be rushing out to hire.
Instead of creating more government jobs, Bahamaland's inefficient government needs to be sending home about half of today's redundant workers, not be wanting to rush out to hire thousands more.
Every time a government paycheck is created over a private sector paycheck, it diminishes any incentive for comparable productivity. I am not some economist but any man or woman on the street can tell you that no government department is the place you would want to go to if you wanted to learn anything about workers efficiency on the job, economics or how free enterprise is suppose to work?
PM before you start hiring even more workers to mess with this VAT thing, first you need to reorganize the complete lack of efficiency in the way the government departments and corporations are going about collecting unpaid taxes and monies in the billion dollar range already owed but going uncollected by the government.
Both the remaining unpaid in the many millions of dollars on the books over at BEC and for the many unknown millions, not even trying to be collected on outstanding property taxes, are just two perfect examples of why we don't need more taxes but improved efficiency in going after those that are getting away with not paying what they owe the government?
by TalRussell
1voice 11 years, 2 months ago
The VAT system is a proven failure. The government need to implement Income Tax on single persons earning over $50,000 and married couples earning over $75,000 (with a percentage scale progression for earning intervals). This way these same politicians and millionaires in our country can be held accountable for the money the make (scam and steal) from us poor individuals.
I am by no means well off and I believe that this is the best solution for our country.
nationbuilder 11 years, 2 months ago
well if the VAT will not increase the taxation amount in the country, then how is the government going to gain additional revenue from the VAT?
PKMShack 11 years, 2 months ago
Well well this is what the people voted for, those plp's sure missing the fnm now, if not give them another 6 months and even Tal will be crying for HAI to return.....lol
John 11 years, 2 months ago
I think this will be a big failure and can send the country into bankruptcy. First off government has a difficult enough time collecting customs duties, even when they have the goods in their custody, so immagine if persons were to pay tax based on an honor system. Secondly, those businesses in a product importing industry will still end up having a bigger tax burden than a business in the service industry. Lets say, for example, Coca Cola vs a Law Firm. Coke imports basically everything it uses to make its soft drinks. So the company will have to pay import duties on all the products it imports in addition to a value added tacked on when its goods are sold to the consumer. A lawyer, on the other hand will only have to add the 15% tax when he bills his client. This money does not come out of his pocket so essentially his business bears no tax burden, only the consumer. So all imported products and all goods manufactured from imported products, where there is no exemption, will see an immediate increase in price of at least 15%. So a case of coke will go from $10.99 a case toabout $12.65. Then since you now have government trying to collect two sets of taxes from the same set of people on the same set of products, the cost of collection to the governmentwill increase. This can lead to an overall net decrease in net tax revenue, as as prices increase consumption will decrease, and as taxes increase, the number of persons willing to evade taxes will also increase. I would think the wise thing to do is for government to continue to collect its import taxes at the borders, and levy a service tax on industries such as hotels, law firms accounting agencies etc. At least they will continue to collect the revenue they are currently getting, while they experiment on the effectiveness of VAT in the service industry. In the maintime customs collection efforts need to be more widespread rather than just focused on New Providence and Grand Bahama. In some parts of the Northern bahamas, Bahamian money cannot spend, because residents jump on their speedboats every weekend to go to Miami to shop duty free!
oasistechgroup 11 years, 2 months ago
Well folks lets get politics out of this, and look at it responsibly so we can get the best out of it. Its a white paper and no legislation. Read and respond to your MPs.
EVERY party said they wanted to do a VAT. http://www.tribune242.com/news/2013/j..." rel="nofollow">http://www.tribune242.com/news/2013/j... . Laing points out a VAT was to be implemented by the govt if they were in power.
Its also in the DNA's manifesto.
Anyway this needs to be done properly. Customs is awful. its terrible for retailers. Imagine opening a store and buying goods and having to pay taxes before making the first sale.
islandgirly15 11 years, 2 months ago
I suppose this is how Perry is trying to fund his new house. You are the PM sir not the head of state. We already have a house for the head of state and acting head of state. Try living in a country with VAT already and then wonder why your bill just jumped 18% for no reason. And believe me if they are starting at 15% it will rise, because remember "tings tuff". Just fix the customs sector, all you will be implementing is another corrupt-able institution for these people.
PKMShack 11 years, 2 months ago
Let the police enforce traffic laws, collect property tax, clean up costoms from stealing, if goverment want to collect they can, too much stealing at the back door and the goverment dont see the cash, what about those free student loans they are not collecting. Neither Gov. has been serious about collecting taxes. And start trimming the fat with all these gov. jobs Starting with the Cabinet so we can see you serious. Jr. dis and Deputy that.....and toss away those money pits, Bahamasair, BEC its called sell to the private sector.
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