0

Idb Study Shows Vat 'Positive' For Jobs, Growth

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

An Inter-American Development Bank (IDB) study has shown that Value-Added Tax (VAT) will have a “positive” impact on the Bahamian economy’s growth and employment prospects in the medium-term, a senior official said last night.

John Rolle, the Ministry of Finance’s financial secretary, said that despite the IDB study being incomplete, the ‘preliminary results’ showed the Government’s tax reform centrepiece would also result in reduced inflationary pressures.

“While the IDB study is ongoing, we have seen the preliminary results, which attest to the projected positive economic impact of the fiscal reforms (growth and employment over the medium term), and to the reduced inflationary pressures to which the budgetary consolidation would contribute,” Mr Rolle told Tribune Business.

“Additional historical data is being added to the economic model, which will allow the researchers to fine-tune their results. Afterwards the results of the study will be published.”

Mr Rolle was commenting after the IDB used its October quarterly bulletin on the Caribbean to confirm it is working with the Government on implementing VAT in the Bahamas. It said its study on the new tax’s impact on the economy and wider society was only “underway”.

“The IDB has been working with the Government of the Bahamas to assist with Value-Added Tax (VAT) implementation,” the Bank’s October missive said.

“Using an econometric model, the IDB has provided specific input on the effects of the changes in revenue of the proposed VAT rates and the base on which the VAT will be charged.

“An economic impact study that assesses the effect on prices, economic growth, poverty and income distribution is currently underway. Consultations on the creation of the Central Revenue Agency, which will administer the VAT and select the IT system, are currently underway.”

Despite Mr Rolle’s assurances, the IDB’s comment is still likely to raise eyebrows in the private sector, as it indicates that the true ‘number crunching’ on VAT’s impact on the wider Bahamian economy and society has yet to be completed, and with implementation of the new tax now less than eight-and-a-half months away.

It is also unclear whether the Government internally, via the Ministry of Finance, has completed ‘VAT economic impact’ studies of its own, or whether this work has been done by other agencies, such as the International Monetary Fund (IMF, or external consultants.

A Ministry of Finance press statement earlier this year referenced work done by the IMF and its regional affiliate, CARTAC, on a Bahamian VAT, although no specifics about the nature of their work were released.

One observer who raised such questions was Rick Lowe, an executive with the Nassau Institute economic think-tank, whose own study on VAT’s likely impact on the Bahamas has been belittled by various government officials.

Suggesting that the Government’s moral authority to do this was diminished by the absence of any completed studies of its own, Mr Lowe argued that the burden of VAT collection/administration was being placed on those companies that were already 100 per cent compliant with their taxes.

And, noting the contents of the 2010-2011 Auditor General’s Report, which found that another $95 million in unpaid real property tax was added to the existing ‘sum owing’, taking this to over $500 million, Mr Lowe questioned how the Government expected to collect everything due to it under a VAT.

“It’s a basket case, it really is,” Mr Lowe told Tribune Business. “How do we expect to implement a more convoluted tax system if we can’t administer the basics?”

He added that the experience of other countries that had implemented VAT was that new taxes did not stop there, often being followed by income taxes and other revenue-raising measures.

“It’s a never-ending way to tax people,” Mr Lowe added. “It’s the thin end of the wedge. If we’re not capable of collecting basic taxes, heaven knows, not to mention the underground economy.”

He added that VAT would likely drive more Bahamians to online shopping and trips to Miami, and said of the IDB’s comments on the economic impact study, or lack of it: “How can they [the Government] stand up there and berate anyone who has concerns based on the impact of VAT on other countries in the region, and they’ve not done a study yet? It speaks volumes.

“They berate anyone who stands up and raises questions, and those questions result from government’s lack of information. We’re beeped down as if we’re dummies.

“They’ve [the Government] been forging ahead as if it’s a fait accompli, and haven’t done a cost benefit analysis. Have they considered the impact on businesses close to the edge? Obviously they haven’t. Is it going to destroy the economy and they get less revenue? Is that the Government’s intention?

“If they haven’t done the basics yet, how can they just think they can throw their hands up and say: ‘We can take more money from the citizens?’ It’s unconscionable. I weep for our country.”

Questioning why the Government had allowed “this large swathe” of non-real property tax payers to exist, Mr Lowe said VAT would impose an even greater tax burden on those who were already paying their bills.

“To say we can’t collect the taxes already on the books, and to tax more people who legally do what’s right and pay the taxes they ought to pay, something’s wrong with that reasoning,” he added.

Comments

jerzy 6 years, 1 month ago

It is the same old story. CARTAC, IMF, World Bank etc. all faceless nameless and with confidential or incomplete or non existent studies trying to impose their own policies on small countries without regard to the democratic wishes of the people. The suggestion that it is in the peoples best interests is unsupported by evidence or data.

The experience of other jurisdictions in the Caribbean has been far from conclusive. There are many factors that should be considered beyond whether a tax instrument is capable of raising large amounts of revenue. The economic impact and costs of implementation, together with the administrative cost of operating such a system are chief among those considerations.

The so called C-efficiency of VAT in the Caribbean is often bandied about as an indicator desirability. However, those people that use this as a positive benefit are either, trying to be deceptive, or are just plain ignorant of what the C-efficiency measures.

C-efficiency Ratio: the ratio of VAT revenue to consumption, divided by the standard tax rate. This measure seeks to avoid the problems encountered in the efficiency ratio, since consumption is a more appropriate VAT base than GDP.

However, in the case of jurisdictions that import a great deal if not all that they consume the C-efficiency ratio will automatically be high. This is because in the region of 70% of VAT is collected at the border as the goods are imported. In those circumstances it begs the question whether the expense of implementing and administering VAT could ever be worth it, being that only around 30% of the revenue is collected domestically. This 30% is unlikely to even cover the costs of collection. Serious thought has to be given as to whether import duty is far cheaper and more efficient in comparison to VAT as a tax instrument.

There is no doubt that VAT is an effective tax in larger jurisdictions with substantial home production. However, there is mounting evidence that it is unsuitable for small island jurisdictions with little or no home production or distribution. This is all provided there is no economic benefit in joining the WTO and reducing duty and trade barriers accordingly. However, in a jurisdiction that produces and export little it is difficult to see what advantages could be had from joining CARICOM's free market and the WTO. It would only encourage imports that would be now taxed on an equal footing with home production; effectively destroying what little home production there is at a stroke.

Bahamas it is your choice, speak up or forever hold your peace. I was central in the campaign against VAT in the TCI. Frankly, I would like nothing better than the Bahamas to adopt VAT it would leave the TCI in a much stronger position, but it would be your downfall.

2

jerzy 6 years, 1 month ago

In addition, the IDB stands to gain a great deal if borrowing restrictions are lifted (by the introduction of VAT). They will be lending the Bahamian government money at a handsome return. So be aware that this is not the altruistic organization that you may be given to believe... they are there to collect your hard earned tax dollars for profit.

0

ohdrap4 6 years, 1 month ago

Well said, Jerzy. You are an educated voice. The average man in the Bahamas does not read newspapers or blogs online, and that is the only place where the literati debate the issue in the Bahamas. There is no public forum, or campaign where Bahamians are told of VAT. Even the customs officers at large have not been told about it.

0

ohdrap4 6 years, 1 month ago

And you know what they say, 85% of statistics are made up on the spot.

0

Sign in to comment