The Tribune

By NATARIO McKENZIE

Tribune Business Reporter

nmckenzie@tribunemedia.net

A leading accountant yesterday warned that if the uncertainty surrounding Value Added Tax (VAT) sparked a decrease in consumer spending, it might push the Bahamas back into recession.

Gowon Bowe, a partner at Pricewaterhouse Coopers (PwC) Bahamas, told Tribune Business that public education on VAT’s was pivotal to influencing consumer sentiment.

He asked: “The one element, which I would like to see, is that this isn’t tax elastic, meaning that if VAT is implemented, would that then create a change in consumer patterns that decreases consumption, decreases spending and actually has a negative consequence, because the amount of tax revenue collected is lower - not because of the tax rate, but because of actual spending.

“We have to be very careful, where we are coming out of a recession, that we don’t push ourselves back into it by aggressive policies.”

Mr Bowe added: “We know it’s [VAT] coming, and how it gets phased in is an important element that we need to be focused on; not damaging the recovery.

“Economics is more about sentiment than theory. If people feel the euphoria, if they feel that the economy is booming, that sense of optimism spreads into spending, which spreads into more jobs being created, people getting salaries and more spending,” said Mr Bowe, a presenter at the 10th Abaco Business Outlook.

“We need to make sure that education of the public is the first start, because it says how it will impact their spending, budgeting and how you operate, as well as how confident we are in the Government achieving its objective.

“A lot of the Government’s projections are predicated on significant GDP growth and, in reality, if you have a policy that leads to a reduction in GDP then all of the projections are for naught.”

Mr Bowe added: “If I have tax certainty, I either make a decision to do something or I don’t. The worst decision is indecision. If we are creating a system that is leading to businesses being in an indecisive mode, then that’s worse than them making a decision not to go ahead with something because their capital may be redeployed into smaller initiatives, as opposed to them saying they’re going to sit on money they could have invested.”

Mr Bowe said that while there is apprehension over VAT, this nation’s tax system has to be revolutionised. “The history around VAT has normally not been a sole tax instrument. It has usually come with some form of income tax or other taxation where it softens the blow, if you will, of what VAT means across the board,” he added.

“The concern that is being expressed by many, and shared by myself, is the timeline between when the information is available in its final form versus the implementation. We all know that the devil is in the details, so while we can research what Jamaica, Barbados and St Lucia is doing, we need to know what it is going to be for the Bahamas.

“We can understand the basic principles. It would be a bit disingenuous to say that there is no information on it. The White Paper was put out, there is an actual bevy of information as it relates to other jurisdictions, but as persons then look to how it impacts their business personally, they will say they can’t make any decision until they know that. We are now already nine months before it has to be implemented.”

Mr Bowe added: “It’s not a light switch. Iit’s not like we’re going to turn it on, and while there may be some hysteria as to the cost of implementing accounting systems to do it, in reality it’s going to be not only the system but the personnel, the discipline to make payments, the tax administration ensuring that they get data, can audit it and validate that they are are collecting it.

“There is no point shifting from an inefficient Customs-based system that we know is not collecting all it could to a VAT system that has inherent checks and balances, but in reality is still not being administered properly.”