By NATARIO McKENZIE
Tribune Business Reporter
nmckenzie@tribunemedia.net
A LEADING businessman yesterday said the Government must have a serious plan to collect all revenue due under a Value Added Tax (VAT) system, citing the $400 million-plus owed in outstanding real property tax (RPT) as a “classic example” tax collection ineptitude.
“I think it good that the Government is moving toward a new system of taxation. You can’t continue to tax goods indefinitely. The tax base is too narrow and they need to come up with alternative ways to spread out the tax base,” said Dionisio D’Aguilar, Superwash’s president.
“The only concern everyone has, if you look at property tax and the Government’s ineptitude in collecting taxes, VAT is a lot more difficult to collect. That is what is on everyone’s mind; how the Government is going to collect taxes when the small amount of taxes it collects now it is inept at doing.
“You can kind of manage with import duties, but when it comes to taxing 3,000 businesses you have to have a serious plan.”
The Government has released its White Paper on Tax Reform, which proposes to implement a Value Added Tax (VAT) on July 1, 2014, at a rate of 15 per cent. The hotel industry is to be subject to a lower 10 per cent rate.
Michael Halkitis, minister of state for finance, during a ‘Meet the Minister’ session hosted by the Bahamas Chamber of Commerce and Employers Confederation (BCCEC), said companies with an an annual turnover of $50,000 or less will be exempt from having to mandatorily register to pay VAT.
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.
Mr Halkitis said the Government is proceeding with plans to establish a Central Revenue Agency (CRA) that will collect all taxes bar Customs duties, the two departments together receiving 90 per cent of all due revenues.
“There are currently more than 30 departments and agencies collecting a variety of taxes and fees for the Government,” Mr Halkitis.
“The present system of administration results in poorly developed functions such as registration, arrears management and audit. Compliance with the law for major taxes and fees is often weak. Significant revenue leakage is occurring, and compliance and enforcement results are minimal, partly due to the absence of an Agency with the legal authority to enforce the law and apply penalties for non-compliance.”
Mr Halkitis said the CRA will ensure compliance with tax legislation by providing efficient and effective services, and by conducting appropriate enforcement activity.
Comments
GilbertM 11 years, 2 months ago
The IMF has promoted VAT for the last 30-years, increasingly in small developing nations. It is an elegant tax on paper. But it is better suited to manufacturing countries where there is actual value added. Let's look at the issues: Government income: Recently, the Finance Minister of Barbados reported that VAT delinquencies are unsustainable. (http://www.gisbarbados.gov.bb/index.p...">http://www.gisbarbados.gov.bb/index.p...). Barbados is a well-organised society. If Barbados cannot sustain with its well-oiled system, how can we in the Bahamas? You will hear Bahamian ministers and adherents to VAT cite the technical design of VAT as if it is holy writ. It is not.
Mission Creep: A central problem implementing VAT in a disorganised society, particularly where that disorganisation is owing in part to size is "mission creep". Because there will be so many exemptions and Zero Rating, and because companies will rise and fall below the Rate Threshold (with some companies financing inventory from Refunds), you will require a massive enforcement team. As such, very soon, you will have to raise the VAT rate to pay for the new people to enforce the old rate as we rush down the Jamaican road to prosperity. The RATE: In almost every case in the region (except Dominican Republic, where they can hardly collect taxes), the VAT rate has doubled within 7-years of introduction. Even in the UK the rate has doubled. Moreover, in almost every country where the rates have doubled, there has been no tourism development. A reason that Dominican Republic has in fact surpassed the Bahamas in room count and stopover visitors is because in part it is cheaper to build there because the VAT rate does not prejudice new developments. (When was the last time you heard of significant developments in Jamaica or Barbados?) The problem is that we do not have a comprehensive picture of our competitive or comparative nexus and how our systems ought to be designed based on what those measures reveal. For instance, we have basically (and unthinkingly) accepted that we must phase out Customs Duties (which is the wrong tax as well), to join in trade arrangements such as the EPA, CSME and WTO, all of which are meaningless to any foundational understanding of the potential options for the Bahamian economic future. Our customs duties do not protect any industry (save a few items), and so ought never to be bargaining chips in any trade negotiation. They are not excise taxes, but merely a lazy unimaginative way of raising government revenues, which we have followed slavishly since colonial times. In 1999, I warned that the strategies of both parties would destroy financial services. They have. In 2003, I wrote that the government should convert our reserves to gold when it was $319.00 per ounce. We did not do that and lost an opportunity to reap billions of dollars. Now I am warning that VAT is not the tax for us.
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