The Tribune

By Larry Gibson

For several months now, I have deliberately excluded myself from the ongoing discussions over the pending implementation of a Value-Added Tax (VAT) regime. Several years ago I wrote a four-part series on taxation options for the Bahamas, in which my conclusion was that:

• Our present system of taxation had taken us as far as it could.
• And I personally favoured a combination of a low income tax (capped at, say 15 per cent) and a sales tax.

However, notwithstanding whatever myself or other ‘sideline’ pundits thought, both the current PLP government and the former FNM administration had concluded that a VAT regime was the ‘way to go’ as it related to tax reform for the Bahamas.

I am fully aware that the issue of tax reform has been the subject of numerous studies, consultations and research papers over the past 30 years, commissioned by various ministries and departments of Government. However, whether all of these studies and recommendations are properly compiled and readily available for review is an entirely different matter.

Given the fact that both major parties favoured the same method of tax reform and would have implemented VAT, why is all this purely politically partisan rhetoric still clouding the issue of tax reform in the Bahamas?

While I am not a professional tax analyst (I only play politics on Sunday afternoons when I sit down to write), I presume there is a vast body of knowledge on taxation residing within Government (which I am not privy to) that would convince all that VAT is the way to go.

Rational conversation

If one were to have a private conversation with literally any Bahamian, they will readily admit that we need to revamp and modernise our tax regime. They will also tell you that the answer to our long-term financial problems must be anchored in a two-pronged approach…revenue enhancements (a fancy way of saying new or higher taxes) and expenditure rationalisation (spending cuts).

According to the official ‘spin’ reiterated during the debate on the Mid-Year Budget, we seem to be making good progress on cutting and rationalising Government spending. While this may be so, the ‘optics’ may not support this assertion. Yesterday, when I stopped at the gas station to refuel my car, a government minister pulled up to refuel his brand new hybrid Toyota Avalon. After he left, and in utter frustration, the pump attendant exclaimed: “Mudda sic dred, in two years he had a new Crown Victoria, a new Ford Taurus and now a hybrid Avalon, and all the poor man get is VAT! That can’t be right.” The moral of this story is that even if you are doing the right thing, you must also be perceived to be doing the right thing. There are a lot of struggling Bahamians out there who are not feeling the recovery, and they are angry.

The current debate

There are several fundamental missteps that have occurred with our current attempt to modernise our tax system:

• Timing – There is never a good time to increase taxes, but to attempt to introduce a 15 per cent VAT when the economy has not yet recovered from the greatest economic recession in more than 80 years is brave at best.

We often talk about how Barbados was able to successfully implement VAT, but they did it when the global and local economy was at its strongest point in decades. This is certainly not our experience in the Bahamas.

• Project Management – Effective tax reform is a two to three-year process of design, education and implementation. Concurrent with the announcement of the decision to proceed with VAT, draft legislation, regulations and an almost finalised tariff schedule should have been made available to the public at large.

Also, there should have been a well-trained and articulate cadre of promoters (with full multi-media support) going throughout the ‘length and breadth’ of the Bahamas sensitising and educating the general public. None of this was in place, and in fact, these things are still being finalised. Strong leadership and project management skills are a prerequisite to successful implementation.

Conclusion

It is not my intention to criticise the civil servants and technical people who are trying their hardest to achieve a political deadline. Unfortunately, they are invariably the ones on the front-line receiving all the criticism, while severely under-resourced.

It seems as though we started this process late, and 12 months was never a realistic timeline in my humble opinion. I personally do not believe that the nation will be ready come July 1, 2014.

Instead, the national, and bipartisan, focus ought to be on finding consensus on how to recalibrate our tax system to ensure economic sustainability for future generations. One day, when we finally grow up, we will realise that there are perhaps six to eight critical national issues that require us to first be Bahamians and then PLP or FNM.

Until next week…

Save the Date

Colonial Pensions will be hosting the world renowned, two-time Emmy Award winning financial talk show host, best-selling author and columnist, Suze Orman, on May 17, 2014, at the Melia Cable Beach Resort.

Her talk will focus on ‘personal finances and retirement planning’. Tickets are $35 and can be purchased from Colonial Pension Services, 3rd Floor Atlantic House, and 2nd Terrace and Collins Avenue. Call 502-7526 for full event information.

Until next week…

• NB: Larry R. Gibson, a chartered financial analyst, is vice-president - pensions, Colonial Pensions Services (Bahamas) , a wholly-owned subsidiary of Colonial Group International, which owns Atlantic Medical Insurance and is a major shareholder of Security & General Insurance Company in the Bahamas. The views expressed are those of the author and do not necessarily represent those of Colonial Group International or any of its subsidiary and/or affiliated companies. Please direct any questions or comments to larry.gibson@atlantichouse.com.bs