By NEIL HARTNELL
Tribune Business Editor
The Government is estimating that implementation of a Value-Added Tax (VAT) will generate a $100 million net increase in its annual revenues, Tribune Business was told yesterday, with the new tax generating equivalent to 2 per cent of Gross Domestic Product (GDP).
Michael Halkitis, minister of state for finance, told Tribune Business the Government was confident VAT would generate “net positive” results for its revenue intake when implemented come the 2014-2015 Budget year.
Asked by this newspaper what impact VAT would have on the Government’s total revenues, Mr Halkitis said: “We have a rough estimate, $100 million more net, conservatively.
“Our goal is to get about 2 per cent [of GDP] when it’s fully implemented.”
The latter figure refers to the gross revenues generated by VAT alone. Given that the Bahamas is estimated to have an annual GDP of around $8 billion, that places monies generated by VAT at around $160 million per annum - a figure Mr Halkitis did not disagree with yesterday when it was put to him by Tribune Business.
The Minister, though, pointed out that much of the detail surrounding a VAT and its implementation had yet to be finalised.
With 16-17 months before the Government’s implementation deadline, much consultation with the Bahamian public and private sector on how the new tax will work has to take place, and Mr Halkitis noted that determining a final list of products/services that would attract a 0 per cent VAT rate still had to be drawn up.
Several accountants, though, had previously expressed concerns to Tribune Business that, based on the information released to-date, VAT’s implementation could be a “net negative” for the Government in terms of its revenues.
This newspaper reported on Monday how the Government’s White Paper proposals to abolish the current Business Licence fee structure and hotel occupancy tax would see it lose $140 million in annual income, based on 2012-2013 Budget projections.
While the Government’s ‘2 per cent of GDP’ VAT estimates would more than make up for this shortfall, accounting industry sources said the new tax would also have to compensate for the reduction in import duties/Excise taxes.
Many of these are set to be reduced in proportion to the burden a VAT would impose, and the Bahamas’ accession to full World Trade Organisation (WTO) membership and entry into other trade agreements imposes further pressure to reduce import tariff rates.
Given this, and the need for the Government to increase its total revenues, some accountants have questioned whether VAT would actually achieve that objective as implementation plans currently stand.
Mr Halkitis dismissed those concerns yesterday, saying of VAT’s outcome: “It will be a net positive, or otherwise we’d be wasting our time. It won’t be net negative.”
He added that the International Monetary Fund (IMF) and Crown Agent studies would not have recommended the Government implement a VAT if doing so would place it in a worse revenue position.
The Government is projecting it will earn $1.319 billion and $231.555 million, in tax and non-tax revenue, respectively, for a total of $1.551 billion in recurrent revenues for the 2012-2013 Budget year. Based on the Ministry of Finance’s projections, a VAT would hypothetically take that to $1.651 billion - closing the fiscal deficit.
Meanwhile, addressing a seminar organised yesterday by the Government-sponsored venture capital fund, Mr Halkitis said the $50,000 annual turnover threshold, above which Bahamian companies must register to pay VAT, was “not set in stone”.
He added, though, that were the threshold to rise to $100,000 annual turnover, the number of companies required to register would not be much different from the 3,798 at $50,000.
And, responding to concerns that the Government’s July 1, 2014, implementation timeline was “overly aggressive”, Mr Halkitis said Saint Lucia had brought its VAT into operation after just 11 months.
He acknowledged that however long it took to implement VAT, there would “be some kinks to work out”.
Noting that most Bahamian small businesses would fall below the $50,000 threshold, and would only have to register to pay VAT voluntarily, Mr Halkitis said of the benchmark: “That’s not set in stone yet.
“Our initial research is that if you move that up to $100,000, for example, the number in terms of registrants is not much different.
“Excluding every business under $50,000 in total turnover, you get just over 3,000 total registrants. If we moved that up to $100,000, there’s very little change.”
Given that those 3,798 businesses accounted for 98.6 per cent of Bahamian economic activity, Mr Halkitis said the Government would still capture the majority of transactions despite the small number of registrants.
As for the implementation timetable, Mr Halkitis argued that it was a realistic goal, although it could be adjusted as implementation drew nearer.
Noting that it took anywhere from 18 months to three years, on average, to implement a VAT - thus indicating the Government is moving to a more aggressive timetable - the Minister added: “No matter if it’s 18 months or three years, there will be some kinks to work out.
“I believe we can do it, largely because a lot of the hard work has already been done. In St Lucia, they did it in 11 months.”
Mr Halkitis said setting a ‘target date’ gave the Government a concrete goal to hit, adding that it would be impossible to get everyone to agree on an implementation schedule.
But accountant Craig A. ‘Tony’ Gomez, the Baker Tilly Gomez managing partner, told the same seminar he was unsure how the Government would verify companies claiming to earn less than $50,000 in annual turnover were actually doing so.
Indicating that this could cause revenue leakage, he added: “I’m not clear how the Government is going to go about ensuring these people are at $50,000 or less.
“If I’m at $51,250, I’m certainly going to be $49,750, so I fall under the radar.”