By KHRISNA VIRGIL
Tribune Staff Reporter
PRIME Minister Perry Christie announced yesterday that the implementation of Value Added Tax (VAT) will be delayed for six months and when introduced will be at a much lower rate than previously planned. It was supposed to come into effect on July 1 this year.
VAT, Mr Christie said, will not take effect until January 1, 2015 and at the substantially reduced rate of 7.5 per cent from the originally proposed 15 per cent. The new rate will apply across the board, excluding a zero rate for exports.
While the original plans for VAT would be offset by a series of reductions in import duties, he ruled those out until at least the 2015/16 Budget.
Mr Christie added that the Ministry of Finance, which is being prepared as the primary administrator of VAT, is proposing much fewer exemptions from the tax. Mr Christie told Parliament that a full list of exemptions will be released shortly.
Until the full implementation of VAT the Ministry of Finance is preparing a regime of VAT inclusive rather than exclusive pricing with a view to simplifying price comparisons for consumers. Mr Christie said the price consumers see will always be the price they pay.
There is also a proposal for businesses that qualify for fiscal incentives on imports to have more control over the timing of recognising certain VAT liabilities through payment mechanisms, Mr Christie said.
Discussing the previously proposed reductions in import duties, which had been forecast to amount to around $300 million, he said: “Being able to streamline exemptions and position the VAT rate much lower than in the White Paper, the Government is not announcing any wide-scale reduction in import duties and excise taxes at this time. Based on the revenue performance of VAT early next year, the Government may be in a position to consider tariff and excise reductions at the time of the 2015/16 Budget. More general tariff rebalancing, however, is still a requirement that will need to be implemented once the Bahamas concludes the ongoing WTO negotiations.”
While the announcement should be heralded as good news for opponents of the new tax system, Free National Movement Deputy Leader Loretta Butler-Turner questioned whether the government would eventually increase the rate due to the lowering of other taxes. Overall, the FNM said the new rate and date are welcomed by the party.
She said: “The challenge we are going to have with the 7.5 per cent VAT is that once the government starts getting revenue from both streams, a border tax and VAT, my concern would be that there is a caveat in there that is going to put a time frame on how long the 7.5 per cent would be in effect. Because if they start they will have to decrease border tax. They may want to just increase VAT in less than a year to make up for those two streams of revenue we would be getting in the first instance .
“That for me is going to be a major concern in terms of the cost of living. So I think that they have got to truly determine when they are going to start cutting down on customs tax and tariffs. And how long a time frame can the Bahamian people and the business community expect the 7.5 per cent to be tied on because the next year if they go and increase it to the 15 per cent, which they wanted to do, I do not see us really growing the economy.”
The government has accepted the New Zealand tax experts recommendations to enlist the private sector in a public education campaign. The New Zealanders were consulted on VAT in the Bahamas last month.
As a result a three-person task force is being established to oversee the process, which will collaborate with the government’s internal activities and provide timely feedback to the Ministry of Finance on the appropriate emphasis of public education.
The task force will have a budget of $150,000 at its disposal. It will be responsible for helping to explain VAT to the business community and the wider public.