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Vat Move 'A Recipe For Recession'

By AVA TURNQUEST

Tribune Staff Reporter

aturnquest@tribunemedia.net

THE implementation of Value-Added Tax without a reduction in current revenue measures is a recipe for recession, former finance minister and economist Sir William Allen said yesterday.

Sir William said that a 2014 roll out of the new tax system was “not doable”, and likely to result in disappointment and frustration for both the government and the taxpayers.

He maintained that the economy was still “too weak” for an increase of the minimum wage as a way to offset the “pain” of VAT.

Sir William said: “Economic performance is very weak, the economy has not yet recovered from the 2007/2008 period. It is still very weak and the recovery is very anaemic. An increase to minimum wage will be contrary to improvement in the economy, it would work against the improvement of the economy. You have to consider the timing.”

He added: “I agree that VAT will not be without pain, because the very nature of VAT, it’s going to impact everybody in society.

The Government is proposing to implement VAT on July 1, 2014, at a rate of 15 per cent, with the hotel industry to be subject to a lower 10 per cent rate. The Government’s White Paper on tax reform proposes to exempt those companies with an annual turnover of $50,000 or less from having to pay VAT.

Sir William called on the government to clarify whether or not it intended to reduce current taxes to make room in the economy for VAT, adding that whether or not officials could strike a balance between existing taxes and the new structure would ultimately determine the strategy’s success.

“The public is not expecting to pay the same level of custom’s duties along with everything. If that is so, there is gonna be hell to pay in this economy.”

“They’re not speaking to that clearly enough.”

Another worrisome component of the government’s VAT initiative is it’s timeline, according to Sir William, who posited that an ideal roll out would be three to five years.

He said: “My concern with the VAT is that they are seeking to put in place much too short a schedule. I don’t think that sufficient time has been given to putting it in place – to put into effect a VAT system by July 1, 2014, with the best of intentions, that is not doable in my view.”

Sir William said: “It is not doable, or if it is done it will be very inefficient and it’s going to lead to considerable disappointment on (government’s part) in terms of revenue that they collect and a lot of frustration on the part of the taxpayers.”

While Sir William noted that it was obvious the government was hard pressed to close the some three per cent gap between GDP revenue and expenditure, he maintained that it was highly improbable that the government could recoup that figure within the 2014/2015 fiscal year.

Sir William said: “You know what they do when you can tell something is wrong in an economy– if you look at the buildings or parks and they’re not maintained and if you listen to people and they’re not being paid - that’s how you know something is wrong, that’s an indication of fiscal pressure, money pressure.”

“And in light of that it’s going to be difficult to see how they are going to reduce their expenditure. There is going to be pressure for further expenditure.”

Pointing to the cost of the government’s anti-crime initiatives, which he commended, Sir William said: “I see nothing that permits them to reduce their expenditure, I don’t see any possibility on the horizon that permits for that.” 

Sir William said: “I think there’s a very valid rationale for putting [VAT] in place, the government is running a capital deficit and a current account deficit. The current account deficit is the most worrisome because that means that your revenue is not covering your ordinary expenses.

He said: “In the context of a household, if you have to borrow money to pay your rent you’re in trouble. If you have to borrow money to buy food you’re in trouble - that’s a current account expense.”

He added: “That’s a big number, if you consider a GDP of say $9 billion dollars, so that three per cent you’re talking about $270 million. You have to do something about that, it’s not a way that you can continue to operate for a long period of time and in fact we’ve been running like that for much too long.”

Nearly eight months after the release of the Government’s White Paper on Tax Reform, the former finance said he was still unimpressed with the PLP administration’s reform strategy.

Back in July, Tribune Business reported that Sir William was “doubtful” that the Government will hit the target timelines for its two key fiscal objectives – the introduction of Value-Added Tax (VAT) and eliminating the fiscal deficit by the 2015-2016 Budget year.

Sir Allen said that while he would prefer an income tax, the Bahamas has already sold itself as a “tax haven”.

“We boast,” he said, “all our marketing has been ‘no income tax’, and there is a certain fear in certain quarters that once you establish an income tax it’s only a matter of time before it impacts [offshore finance].

Sir William said: “We seek as much as we can to exclude the offshore sector from this tax on the assumption that one of the reasons why they come here is that they come to avoid income tax. One can argue whether that continues to be a valid position, but a lot has changed in the Bahamas.”

Comments

Reality_Check 6 years, 2 months ago

Like James Smith, this fella Allen is a dinosaur that won't become extinct! For years he was in charge of our country's finances and just look at the pathetic state they are in today. He has always been too easily intimidated by a boisterous PM and therefore largely ineffectual as regards his true underlying leanings on economic policy and solutions for our country's financial woes. If he could flat come clean with the Bahamian public, he should tell you us that the following inter-related factors (in order of significance) are primarily responsible for the perilous financial condition that our country finds itself in today :

1) The inability of our FNM and PLP governments to protect the sovereign interests of our country by addressing the wicked financial assault beset on us by foreign governments like the U.S. through their agencies (e.g. IRS, IMF, WTO, OECD, World Bank, IDB, etc.) who all wrongfully perceive a financially healthy Bahamas to be inconsistent with their own national security interests;

2) The enormous concessions granted to foreign investors by PLP and FNM governments alike in exchange for "favours" (the polite word for "bribes") of one kind or another that benefit the politicians, their political party or their local business cronies/partners (often family members or close personal friends);

3) The corrupt influence peddling of our politicians, whether they be PLP or FNM, in business ventures for the benefit of themselves and their business cronies/partners in the private sector, particularly involving the procurement by government of goods and services at grossly inflated prices to accommodate "flow back arrangements" (once again, often involving family members or very close friends); and

4) The persistent failure of FNM and PLP governments alike to enforce the already existing revenue raising laws of our country (e.g. customs duties, stamp taxes, real property taxes, BEC revenues, etc.) as a result of turning a blind eye to the granting of "favours" to the "big guy" who is willing to line the pockets of politicians, ministry of finance personnel, customs officers, public treasury personnel, BEC personnel, and on and on.......

YES, MR. ALLEN, WE DON'T NEED A VAT...BUT TRUE TO FORM YOU ARE COMING TO THE TABLE MUCH TOO LATE AND MUCH TOO SHEEPISHLY! WE JUST NEED TO ADDRESS ITEMS 1 THROUGH 4 ABOVE! COMMON SENSE SHOULD TELL YOU THAT AND IT IS THAT WHICH YOU SHOULD BE WILLING TO FRANKLY TELL YOUR FELLOW BAHAMIAN CITIZEN!!

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concernedcitizen 6 years, 2 months ago

Why would the U S want the Bahamas to have a weak economy ,so we flood their shores on inner tubes ??IF we don,t sign the treaties w/ WTO ,IMF etc ,it will become more and more difficult to trade .To buy goods to import you will have to travel w/ suitcase full of cash like drug dealers ,b/c if we are not complainant the large clearing banks ,chase in NY , will not clear our drafts from the central bank of the Bahamas .Sure we want foriegn capital to come here for favorable tax rates ,but if they can,t move their currency at will they are not coming ..It is a lot more complex then just giving the US the finger and both PGC and Hai know this ,even the mighty "OFFSHORE BANKS " IN Switzerland had to bend ..The days of complete banking secrecy are coming to an end ,,

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Reality_Check 6 years, 2 months ago

In response to concerned citizen: The U.S. decided a long time ago that its much more cost effective and efficient for them to fight the so called "inner tubes" 12 miles off their shores rather than through a vast archipelago of islands. As for cutting us off from the worldwide financial system, the U.S. has been hell bent on doing that to just about every banana republic that exists on the planet for the protection of the system itself. WE JUST NEED TO VOTE FOR POLITICIANS WHO APPRECIATE THIS FACT AND ARE NOT INCLINED TO BEHAVE LIKE IMBECILES OR EMPLOY/CONTRACT WITH KNOWN THIEVES!!!!

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The_Oracle 6 years, 2 months ago

I wondered when one of them was going to bring up raising the minimum wage as a way to "soften the blow" to the working class. This of course would be akin to twisting the knife already stabbed into the working man and the business backbone, as a good % would get laid off! Get done now whatever you can afford and need to do, be looking at ways to get leaner than you already are, We are going back to the fishing village/subsistence living model! Courtesy of Pindling, Ingraham and Christie and all those who got sweetheart contracts, favors and kickbacks.

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concernedcitizen 6 years, 2 months ago

The reason we are going back is just like our neighbors ,Haiti ,Jamaica ,we are making more babies than our GDP can absorb .We have been avoiding this by over staffing our public corporations .Well ,that cost money ,thus the borrowing and taxing .The alternative to hiring our under educated offspring on the public payroll is crime and poverty like you can,t imagine . If we keep making babies like topsy large ghettos ,crime ,poverty and a ruling elite is the only outcome ,,,We run about a billion two budget a year w/ 2/3 going to public service payrolls ,thats not even expenses and pensions ,,,gee no wonder we got to borrow to pave 20 miles of roads ,,mathmatically it can not go on ,,1 in 4 people can,t not work for government there is not enough people left to tax to support it ..

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The_Oracle 6 years, 2 months ago

Subsidize everyone for housing, food, health care, medicines, etc etc But all the signs at the National parks in the U.S. say: "please do not feed the animals, they will become dependent"

It is unsustainable, but we will ride it to the last mouthful and demonize those who earn, save, produce, and carry all the riders. Government has been borrowing against the countries GDP, which is us, the people. Is it any wonder that they think we are here for their exclusive use and abuse?

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