The Tribune

ALTHOUGH the FNM remains “committed to tax reform”, it is not “on board the VAT train”. So announced Opposition Leader Dr Hubert Minnis in the House yesterday.

“And, while we are committed to tax reform,” he told House members, “based on what we have seen, read and heard so far, we are not convinced that a VAT is the way to go to achieve our goal of reforming our tax system and broadening its base.”

Many experts think the same. For example, Richard Teather, a senior lecturer in taxation at Bournemouth University Business School, a Fellow of the Adam Smith Institute in London, and a member of the Editorial Advisory Board of the Journal of Economic Affairs, has concluded that VAT is a “notoriously complex tax” and one that is not well suited to small island economies such as the Turks and Caicos — he could have added, the Bahamas, which has a similar, although a slightly more complex economy. Mr Teather was commissioned by the Turks and Caicos Independent Business Council to study that island’s system and give an opinion. He gave thumbs down to VAT.

And in Grenada, where their prime minister has a doctorate in Mathematics, the notorious IMF was called in to help devise a “home grown programme” especially designed for Grenadians. Apparently, Prime Minister Dr Keith Mitchell also did not think that VAT was the answer to his island’s financial problems.

“The Great Recession of 2008–2009 accelerated the pace at which tax reform has had to come about in The Bahamas,” Dr Minnis told House members yesterday.

“The Great Recession,” he said, “also increased the Government’s Debt to GDP ratio beyond our normal and usual ratio. The FNM in its 2012 Manifesto listed as third among its priorities in a new term, behind fighting crime and growing the economy, the reduction of Government debt. And we committed to ‘accelerate taxation systems reforms to reduce dependence on border taxes and broaden the tax base’.”

Dr Minnis said that the Opposition had heard the “argument by the present Government in support of the introduction of a Value Added Tax in The Bahamas”.

“And we remember that the Minister of Finance did warn at the time of his Budget Communication last May, that he would be coming back to the House to secure an additional $70 million in revenue that had not been provided for in the 2013-2014 Budget Estimates.”

However, the Opposition believed that a proper balance of public finances was desirable.

“It will result in a decrease in the rates of growth of Government debt, an increase in employment, a reduction in tax exemptions, and improved fiscal discipline,” he said.

However, the Opposition was “not convinced that enough effort has been made to maximise revenue collection from existing taxes – real property tax, customs’ duties, business taxes and Road Traffic chief among them”.

Dr Minnis recalled that Prime Minister Christie was confident that he could do better than the deficit target this year.

Although, he said, the Prime Minister was confident that he could do better, this was not reflected by the numbers in yesterday’s interim budget.

Although Prime Minister Christie as finance minister “continues to say how he was convinced when he came to office of the need to return Government finances to sustainability,” said Dr Minnis, he deliberately ignored the “impact of the greatest global recession in more than eighty years that also preceded his return to office”.

However, said Dr Minnis, on Mr Christie’s return in his first annual Budget he “proceeded to accumulate the greatest deficit the country had ever seen and reinforced that deficit accumulation in his second annual Budget. He obviously misses the irony in all of this”.

Given these circumstances, said Dr Minnis, he found it difficult to understand Government’s decision “to choose this time to introduce another exemption from Excise Tax – this one for vehicles imported by the Government.

“Granted,” Dr Minnis conceded, “that the payment of this tax is truly only a paper transaction but what about all other Government imports – for equipment and machinery for hospital and schools for example. “Was this simply to facilitate the import of more luxury vehicles for Cabinet Ministers?” he asked.

He told the House that he recalled “some consternation by Members Opposite, most especially the Deputy Prime Minister, when the Financial Secretary made an order for a Mercedes Benz for the Prime Minister’s official use prior to the General Election. It was delivered several weeks or months after the elections. No similar concern has been expressed about a similarly luxurious Lexus for the Deputy Prime Minister’s official use since the elections. Is this new exemption a signal for the future?” Dr Minnis asked.

And in the shadow of all this luxury, the Bahamian people are going to be subjected to VAT to help pay the debts. Until an example is set at the top to cut spending, Bahamian businesses, rather than expanding, are going to continue to shrink their own budgets, thus seriously affecting employment.

The future indeed looks bleak.