The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Democratic National Alliance’s (DNA) chairman yesterday suggested the “only way to survive” for his retail empire was downsize it to a single store, as he warned that Value-Added Tax (VAT) would “wipe out”the small business sector.

Andrew Wilson, who owns the Quality Business Centre (QBC), Radioshack franchise and several apparel stores, said Bahamas-based businesses likely faced a ‘double whammy’ from a VAT-induced increase in input costs and decline in consumer spending.

Noting the impact that a 15 per cent VAT levy would have on his commercial rental rates and insurance costs, Mr Wilson suggested the new tax would sap the entrepreneurial spirit and negatively impact a Bahamian retail industry where profit margins were relatively thin.

Suggesting that the private sector was “pretty much between a rock and a hard place”, Mr Wilson also questioned why the Government, in seeking to address its fiscal crisis, was refusing to tackle its excessive spending caused by a “bloated civil service”.

“As a retailer that has been suffering through this eight-year recession that we are in, I just think it’s going to wipe out, to a great extent, the small business sector and drive a substantial portion of our economy to the black market,” Mr Wilson told Tribune Business on VAT.

“The middle class and poor, who sustain this economy, will see a drastic cut in their disposable income just to live. The business sector is not going to be in a position to provide the salary increases in this economy that are needed to keep people’s heads above water.”

A major concern with the Government’s VAT proposal is that it will be inflationary, sparking a broad-based price increase across the Bahamian economy.

Apart from raising business costs, Mr Wilson’s fear - as expressed to this newspaper - is that reduced purchasing power and living standards, as a consequence of the price increases, will result in a drop in consumption and consumer spending. The end result: cost rises, and falling sales, which squeezes profitability.

“The one thing they do have some control over is the number of working hours,” Mr Wilson said of businesses, implying that some companies might respond to VAT by reducing working hours or staff count.

He operates six stores himself, and he told Tribune Business that a 15 per cent VAT would increase his collective $30,000 monthly rent payment by $3,500 to $33,500.

While the sale/lease of land and residential properties is VAT ‘exempt’, according to the Government’s ‘White Paper’, commercial real estate - such as Mr Wilson’s lease payments - is not.

And he expressed similar concern about the impact VAT would have on an electricity bill “10-12 times’ that of the US” (although the Government appears to be reconsidering this) and his businesses’ property insurance premiums.

“There is absolutely no way that a retailer can sustain these types of cost increase at the same time as the market he serves (consumers) will have a decline - a very real decline - in their spending power,” Mr Wilson told Tribune Business.

“I have a 12 year-old son. I will provide, but I can only survive by further downsizing. We’ve done a tremendous amount of downsizing in the last eight years. Maybe the future is to have one store, three-five employees and run a tight shop.”

Confirming that he would have to register to pay VAT, Mr Wilson used the hypothetical example of a retailer with a $110,000 annual turnover.

He explained that 50 per cent of that sum would be used on inventory purchases, leaving just $55,000 for rent, utilities payroll and government taxes.

“You still have a dream of an illusory profit, and it simply just cannot happen,” Mr Wilson told Tribune Business. “Cash flows have been cut in half by the recession.

“VAT will kill the goose that laid the golden egg, and there will be no one to produce the taxes they require.”

Calling on the Government to instead make “the hard decisions”, the DNA chairman urged it to also cut spending as part of fiscal reforms - not exclusively focus on extracting more money from everyone.

“We have a bloated, unproductive civil service that is a sacred cow,” he said.”With every change in government they bring in their generals, campaign workers and put them on the public payroll. That needs to stop.

“Further, all those who are getting pensions as well as salaries, they need to move on. Government must operate within the confines of its revenues. We are taxed out.”