The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A leading Ministry of Finance consultant yesterday blasted the Nassau Institute’s Value-Added Tax (VAT) study as “one of the most extreme, ridiculous and exaggerated” reports he had ever seen.

Ishmael Lightbourne, the former PricewaterhouseCoopers (PwC) (Bahamas) senior partner, who is now a member of the Ministry’s VAT implementation unit, slammed the report as “riddled with inaccuracies” and said it was only being read because it “bashes” the Government.

Addressing a Bahamas Institute of Chartered Accountants (BICA) seminar, Mr Lightbourne effectively accused the study of promoting an ideology - that of spending cuts as a means to both reduce the size of government and slash the fiscal deficit.

Such an approach, he adamantly asserted, “will not happen in the Bahamas” due to the political and economic implications that large-scale civil service redundancies would bring.

His rant was sparked after accountant Ronald Atkinson raised the problems VAT had created in the UK and other Caribbean countries, particularly St Lucia, where just this week that island’s employers federation called on the government to reduce its VAT rate from 15 per cent to 10 per cent, and provide “some breathing space” to the private sector in the face of job losses and business closures.

Arguing that Mr Lightbourne’s fellow Ministry of Finance consultant, Pauline Peters, had given BICA members “a nice theoretical presentation”, Mr Atkinson said he had asked Ryan Pinder, the minister of financial services, a VAT-related question the latter had yet to answer.

The question, the veteran accountant said, was given that so many Bahamians fail to pay the likes of real property tax, Business Licence fees and National Insurance Board (NIB) contributions, “what, Mr Pinder, leads you to believe they will pay VAT?”

In response, Ms Peters, a Grenada national, conceded that “a lot depends on the honesty of businesses” to accurately report - and remit to the Government - the correct amount of VAT that is due.

She added, though, that with VAT registrants needing to reclaim the tax paid on their ‘inputs’, the self-enforcing nature of VAT would help the private sector to “clean up your act” and “put your house in order”.

The Bahamian government’s plan, as with all VAT systems around the world, will rely heavily on the accuracy of private sector bookkeeping and accounting records.

And this, Ms Peters added, will also need to be backed up by strong government enforcement and compliance efforts, featuring audits of companies suspected of tax evasion or under-reporting.

While “the paper trail” left by VAT should carry right through the economy, the Ministry consultant added: “The tax administrators will have to put strong structures in place to monitor what businesses are paying.”

And, highlighting another potential dilemma facing the Government, Ms Peters indicated how it would have to prevent VAT tax base erosion - and guard against future rate increases - by resisting private sector lobbying for ‘zero rated’ or ‘exempt’ status.

“Businesses will lobby left, right and centre for exemptions,” she warned. “Can we be exempt? Can we be ‘zero rated?’ No one wants to pay.”

Then came Mr Lightbourne’s riposte, although it was unclear whether any BICA member had referred to the Nassau Institute study by name.

The report, released last week, found that introducing VAT come July 1, 2014, would result in a net $165 million annual reduction in government revenues, as opposed to the net $170 million - equivalent to 2 per cent of GDP - increase the Government is projecting.

It also forecast that the private sector would be burdened by $103 million in annual compliance costs, and suggested that Bahamian GDP growth would be slashed by between $322-$483 million per year.

While acknowledging that Bahamians “as a people do have a problem with compliance”, Mr Lightbourne argued that VAT would improve this.

And he added that there needed to be “change management” when it came to Bahamians addressing their responsibilities as taxpayers.

Then, turning to the Nassau Institute study, he blasted: “I find it one of the most extreme, ridiculous and exaggerated pieces of writing I’ve seen from a professional person.”

Mr Lightbourne took particular issue with the report’s assertion that one-third of the 15,453 Bahamian companies not required by law to register to pay VAT would do so voluntarily.

This, the Nassau Institute study said, would result in the Bahamas having 3,800 mandatory registrants and 5,115 voluntary registrants, for a total of 8,915 registrants.

Dismissing this, and with it the study’s calculation of $103 million in increased private sector compliance costs, Mr Lightbourne said he was writing a report to rebut the Nassau Institute findings.

“I looked at the largest eight accounting and legal firms. Their gross annual income was less than $80 million. Where in the world do you think $103 million would be imposed on businesses from?,” he asked.

“It’s a report riddled with inaccuracies, and he [the author, former Canadian Revenue Agency auditor, David Godsell] expects it to be gobbled up?

“A lot of us are reading it because it bashes the Government, not because it’s a meaningful, accurate report. Yes, read it, but read it with an unbiased view,” Mr Lightbourne added.

“This has very little merit. I will be writing a report to explain the gross inaccuracies and exaggerations.”

The Nassau Institute report had argued that the Government should focus on spending cuts as a means of debt reduction and debt control, but this was immediately scotched by Mr Lightbourne.

In doing so, though, he indicated that the main reason for doing so was political, due to the consequences emanating from civil service downsizing.

“That will not work in the Bahamas,” Mr Lightbourne said of the Nassau Institute’s suggestion. “Politically it will not happen. Economically it will not happen. It’s [the report] fatally inaccurate in a whole range of areas.”