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Politicole: The Trouble With Vat - First Impressions

POLITICOLE

By NICOLE BURROWS

1 VAT is showing itself to be very challenging to implement at the point of sale.

This is the case across an assortment of businesses. Some have no system at all in place. Some have systems which are not set up correctly and are not properly calculating the tax. Some are defaulting to manual receipts and incurring unbelievable human errors.

It has been said that there are temporary rules in place for what is considered acceptable price displays and VAT-exclusive pricing versus VAT-inclusive pricing, but that story changes depending on who you talk to. The rules are not hard and fast and they leave room for a lot of inconsistency in their application. Consumers can’t adjust, because, in addition to being ill-informed or uninformed, there are multiple methods of tax calculation and just as many different methods of disclosure being used, not just one method that all businesses and end consumers must adjust to right away.

2 VAT is being used to disguise price increases across the board and in a cross-section of industries.

Businesses are using VAT as an opportunity to increase their prices all around; from the most miniscule to the most excessive price increases are being implemented on goods and services, and consumers are left to decide whether these increases are reasonable, predatory, or whether the 23 per cent increase in the cost of a hot pattie is too much to pay and if it is necessary to forego eating them altogether.

And I think more of this is happening than anyone – government included – would have thought would or could happen. How the VAT department will separate the sheep from the wolves is anyone’s guess. And when they can make the distinction, what will actually be done to penalise a business that acts outside necessity? And how long will it take to administer said penalty?

While, to an extent, it is an understandable plight of the businessman, any price increases, especially significant ones and those occurring on the heel of VAT implementation, must be conscionable, or consumers will not buy what’s being sold. If the goods are demand-elastic, like movie theatre tickets, sirloin steak and salon services, these businesses will easily price themselves out of operation.

Some will argue that the market will self-regulate, but not before it seizes up. Perhaps, for the first time, Bahamians will get to see what the value of our dollar is really like. I imagine that will be just one of many “firsts”.

As a market observer and contributor to social media agents of change like the groups Stop Gettin’ Swing: Bahamians Against Greed and Corruption, and ConsumerAction Bahamas; and the pages BLACKLIST242, and Bahamas Consumer Price Watch, I’ve received messages from members of the public with records of price increases of as little as a half per cent or less at popular fast food chains, some nearing 25 per cent at non-franchise food merchants, and as much as 45, 70 and over 100 per cent at grocery stores.

Obviously, these businesses are frontloading their earnings to make up for anticipated losses and reduced profit margins; to a point, you almost can’t blame them. But, I get the feeling they’re doing it especially because, on the back end of this first quarter and this first year of VAT, they have little to no confidence that The Bahamas government will refund them at all, on time, or accurately.

3 VAT carries with it an extreme lack of confidence.

If prices are not set up correctly in a point of sale system, if there are errors in calculation, if displays and receipts are not clear, if there are unscrupulous price increases ... these all inspire a general and harmful lack of confidence in the collection of VAT.

Add this to an already existent environment of low confidence, and it leads to consumers and businesses revolting and evading taxes, on the one hand, or consumers withdrawing their patronage, causing businesses to shut down altogether when VAT administration and being a business owner becomes more of a hassle than its worth.

After only five days of VAT, it is clear that the weeks and months ahead will be challenging for anyone living in The Bahamas, to say the very least. And it seems a preponderance of people (Bahamian and non-Bahamian) are on edge because of it, not so much because it is new, or because no one wants to pay taxes, but because few can imagine that the administration of this system is not pre-flawed, with subsequent flaws only making the situation that much worse.

For example, if the large retailers who claimed they would be ready from “day one” are not yet ready and do not present the tax in the manner they are supposed to, then how can we, realistically, expect a clumsy government to manage their own VAT duties efficiently?

The end consumers are livid, on one side of the discussion, because vendors are slamming them with price increases, whether minimal or exorbitant. Vendors are angry with end consumers for having a problem with being slammed with innumerable and inordinate price increases, because they feel they have no other alternative, having been squeezed into a corner by a government intent on doing what it wants to do and finding select people to justify and endorse what may be an otherwise foolish decision.

So who will push back the most against Value Added Tax? Who will suffer the most as a result of its enactment – businesses or end consumers?

I think anyone who pushes back will suffer, because there is a degree of sacrifice in taking a hard line in either direction. To conform, consumers will have to revamp their lifestyles in one fell swoop, trimming the excess from their lives (which may in fact not be excess but necessity) if they’re law-abiding, and taking their pound of flesh if they’re not law-abiding – and that might be applicable both figuratively and literally in our current social climate.

As for the businesses, if they push the consumer too hard, they will lose business, and could potentially fold, because they won’t be able to get away with extorting consumers as perhaps they once did with ridiculously priced goods and services.

And if businesses push back at the government, or go rogue as some already have with respect to the initial public experiences of VAT, they will suffer penalties, government inaction, or become so disgusted that they close their businesses.

It will be interesting to see which businesses can make it to the end of the first quarter of 2015, and which can make it through to the end of the year. The longer they can hang in there, the better an indicator it could be of their ability to at least remain a going concern. But the duration of VAT growing pains is certain to be prolonged, which is in turn certain to lead to greater economic woes … increased criminal activity, and soon other social ills previously regarded as unimaginable.

One of the things I think is already worthy of being deemed a social ill, without hesitation, particularly given the compromising position it places our national development in, is the widespread deficiencies that exist in basic education – English and Mathematics – amongst our population. These failures are being manifested just in the implementation of VAT. Our national exam D average is really showing its true and loudest colours now.

Consider that, in social media dialogue, there are many who seem to think that they’re only supposed to pay 7½ cents on their final bill, whether they spend $1 or $1,000. They don’t comprehend that the tax is levied as 7½ cents on every dollar spent. And it sadly and painfully implies an extreme level of ignorance about taxes – and/or an extreme lack of basic math skills.

There is some outcry that the government – in the persons of VAT representatives – needs to give the whole country a VAT lesson; I think that would be a waste of time, if what they need first is a math lesson. I mean, people truly cannot add. They can’t multiply. They can’t divide. They don’t understand percentages and they can’t calculate them. It is frightening. But it is real.

So, as ridiculously basic as this might appear to the well-educated, here goes:

7.5% is the VAT.

7.5% is also written as 7.5/100.

7.5/100 (7.5 divided by 100) = 0.075

0.075 is your “multiplier” (see chart below).

Whatever your base product price is, multiply (‘times’) it by 0.075 to get your tax amount. The following schedule should be helpful as a very basic guide for every dollar or portion of a dollar spent.

For example: a pair of shoes is $40 before VAT.

VAT on those shoes is $40 x 0.075 = $3.

Your pair of shoes, with VAT, now costs $43.

As rudimentary as this is, there are some people who really do not know or understand this, and they don’t know that they don’t know; that’s the worst kind of unawareness because it’s harder to resolve.

Please share… and help those who don’t know.

• Send comments via Tribune242.com or nicole@politiCole.com.

Comments

watcher 5 years, 1 month ago

Thank you. This article very well sums up my frustration, anger and bewilderment at the way VAT has been rolled out. Nothing about VAT's introduction has been positive, and the Government already seems hell bent on blaming the retailers for all the ills we will face. We have already heard that supermarkets, cinemas and fast food outlets are caught in the crossfire.....how long will it be until so many industries are up in arms before someone admits that this was ill thought out? I will not hold my breath waiting for the Government to acknowledge it does not know what it is doing

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The_Oracle 5 years, 1 month ago

You are absolutely correct that we Bahamians are for the most part clueless. Duty has always been a hidden tax, especially from the consumer at local retail, and save their attempts in evading duty at the airport, attempts which are largely successful, few even understand that simple tax! The biggest challenge for Price control/Consumer affairs is finding legitimate complaints among the thousands they will get born out of consumer ignorance. All very time consuming for a mathematically challenged investigator with a bent for wielding the Government stick. Having had many "opportunities" to educate consumers, and realizing the absence of any rationale to appeal to, this is the biggest hill to climb. It does not help that the appointed head of Price control is on a witch hunt and making all sorts of misleading statements and by self admission, is looking to expand his new found power. VAT represents a first world tax structure introduced to the most lax, non record keeping society of the third world. Sadly, the Government could have appealed to the private sector for help but instead chose to ignore them, save perhaps a few, but none were consulted that I'm aware of. Perhaps the plan to make the private sector the bad guy gave them fits of conscience on that score. Nor did it help that the private sector put self first and foremost in the initial VAT @ 15% fiasco, when they rushed to get dibs for their sector on exemptions! In the second go around, most were in denial almost up to the last minute. Overall the Government has done a pathetic job in implementing a necessary evil where national finances are concerned, but to that point I do not hold out any hope they will do anything but waste the money. It is their talent, which is what got us into this mess in the first place. As to social media, it is possibly better called a digital lynch mob, where the accused is denied even the pretense of a trial. Guilty with no chance of innocence declared. Will the Government apologize to any of the publicly accused if found innocent? When has government ever apologized for any thing?

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TheMadHatter 5 years, 1 month ago

All good points. Yes, the Govt has not paid attention to any ideas or offered assistance from day one. They believe they understand business, and they do not. For many many months through various channels I have tried to get the message to them to:

  1. Implement VAT initially at 1% so that the money part of it (the increased prices) is not the issue. That will allow everyone to focus on the procedures without wailing that the sky is falling. Did they listen? No.

  2. I have asked that a speciall account be setup for VAT and a simple one paragraph Freedom of VAT Information Act be passed to that the money that comes into to that VAT account can be monitored by the public online. We should be able to see every company's total monthly or quarterly contributions and every single transaction which the Govt makes taking money out of the fund and for what purpose that money is being put to. Did they listen? No.

The results of not listening to the Hatter are being witnessed by all.

By the way, the Hatter will be running for PM in the next election and I look forward to your support - LOL.

TheMadHatter

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chairarranger 5 years, 1 month ago

The government and its revenue advisers have followed 140+ other countries in the world with a pure VAT model (where there are no exemptions, and no variable added sales taxes), that all successfuly use inclusive pricing. Not one of these countries use exclusive pricing because VAT is not a sales tax. Our policymakers chose to follow a successful, tried and tested pricing model, rather than adopt the wishes of a handful of local retailers who would prefer to disguise from customers the true, final prices of products in their advertising material and on the shelf, right up to the point they open their wallets.

Inclusive pricing means the price you see is the price you pay and the receipt you get helpfully gives customers a subtotal of the tax component if they wish to keep a record of how much VAT they have paid to government. You cannot buy a product without first having paid VAT, there are no exceptions.

Citizens deserve transparent prices that are accurate and all inclusive, and that is why the Bahamas Federation of Retailers has comprehensively lost the argument for exclusive-pricing with both sides of politics.

Retailers who are genuinely interested in transparency and full disclosure in the interests of customers will simply price their products in this sort of format:

"Price: $129.00 (includes VAT of $9.00)"

Hardly complicated.

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chairarranger 5 years, 1 month ago

Neither the USA nor Canada have pure VAT. Again: the USA has a sales tax model. Canada has a mixed consumption tax model that involves combined 1. VAT plus 2. sales tax involving up to six different rates depending on the province plus 3. a large number of product lines that are exempt from either VAT or exempt from one of the sales taxes or exempt from both VAT and the sales tax.

So neither example you provide is relevant. There are 140+ other examples that are relevant, from 140+ countries that have the same single consumption tax model with almost no exemptions ("pure VAT") that we do. And all use VAT inclusive pricing.

You know all of this yet you talk yourself into believing otherwise because you cannot admit you are wrong. Just like you seem to want to deliberately fool prospective customers into thinking that a $120 advertised sweater is not in fact a $129 sweater until you have them with their wallet open at your cash register. A customer cannot buy your sweater and leave with it without paying VAT included in the price and in the payment. So you price it VAT-inclusive on the shelf. Its now the law.

That such deep ignorance of fundamental concepts continues to be displayed from certain quarters of the retail community regarding their obligations to customers and to the law should ring alarm bells within the community. If you and the BFR were genuinely interested in transparency you would price your goods in a format like the ones I've used as examples:

"Price: $129.00 (includes VAT of $9.00)"

or

Item: $120.00 + VAT: $9.00

Total price: $129.00

But you're not really committed to transparency are you. You expect customers to stand at your shelf or rack and mentally compute the final price, or carry a pocket calculator or abacus with them when they go out shopping.

If you think you should exclude VAT from the shelf price, why do you not also exclude, say, the variable cost of store lighting , or the cost of delivery of the item from the wholesaler's warehouse, from the pricetag too? Add that at the cash register along with the VAT? Plus plus plus everything.

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chairarranger 5 years, 1 month ago

Restaurants, you say? Have you even read the guide?

The Bahamas VAT Guide (Ministry of Finance, Dec 23, 2014, page 13) states:

"Pricing

All prices displayed must include VAT. Labels on goods and prices displayed on the shelf must be inclusive of VAT. You must also clearly display a sign that states that your prices are inclusive of VAT. If you display a list of items (for example on a menu or a price board) the price must be inclusive of VAT and you must display a declaration that clearly states that your prices are inclusive of VAT. Restaurants with dine-in table service, however, may publish menus with the VAT exclusive price and the amount of VAT shown separately.”

Where do you think the VAT amount is shown...etched onto the underside of the table? On a separate document under the counter? No, on the menu, shown separately.

Are you now arguing that your retailers would like to do this too on your pricetags and shelf labels (given that clothing stores do not have menus)? If so then you can, go for it, you are welcome to, and you can do so within the existing law, because this is how its done:

Item: $10.00 + VAT: $0.75

Total price: $10.75

Have you also noticed that millions of retailers across the world display VAT-inclusive pricing, including hundreds now in The Bahamas, and have systems that are quite capable of doing so. Its hardly the governments fault that some retailers represented by your federation are using antiquated business systems. Many businesses here are fully compliant already.

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chairarranger 5 years, 1 month ago

What about Panama, Argentina, Barbados, Guatemala, Venezuela, Brazil, Mexico, Ecuador, Chile, Colombia, El Salvador, Peru, Paraguay, Guyana, Uruguay... all with VAT and a VAT-inclusive pricing model.

The US has a sales tax. Canada has a mixed consumption tax model. Neither of these countries are comparable to our system.

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chairarranger 5 years, 1 month ago

But we haven't copied either the USA or Canada. We didn't introduce their tax systems here. They use different consumption tax models to us. Ours is used in 140+ other countries, all with VAT-inclusive pricing.

You don't speak for "most Bahamians" nor the "majority" of anyone - you speak for a handful of local retailers wedded to a debate in which your preference was resoundingly rejected by both sides of politics. Its refreshing to see so many local retailers who have embraced the VAT-inclusive pricing laws already with no fuss, honest pricetags that show all information, and a positive attitude to working within the law.

Congratulations to those Bahamian businesses who care about consumers and who already agree that the price you see is the price you pay.

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chairarranger 5 years, 1 month ago

Since when is almost the entire European continent (all with VAT-inclusive pricing) considered the third world? Have you ever travelled?

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chairarranger 5 years, 1 month ago

What a ludicrous statement from someone with a European name who retails clothing from European brands made in European countries where VAT-inclusive pricing has been successfully operating for decades. How can the Bahamas Federation of Retailers be taken seriously when it wants pricing systems that relate to completely different tax policies than our own?

Thankfully many other local businesses already agree that the price customers see is the price customers pay, and have already priced everything VAT-inclusive in the interests of honesty and transparency.

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chairarranger 5 years, 1 month ago

A small group of highly self interested retailers are making it up as they go along. The Bahamas has a tax system that requires honest, transparent shelf pricing - VAT inclusive - so that the price you see is the price you pay.

If retailers want to highlight the VAT portion of the final sale price, all they need to do is ticketprice their stock like this:

"Price: $129.00 (includes VAT of $9.00)"

No more hiding. No more trickery. From government, or from a small handful of self interested retailers for whom consumer protection is apparently a foreign concept.

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chairarranger 5 years, 1 month ago

In the preliminary stages, when the tax policy was being designed, in the lead up to the White Paper publication, some businesses and business groups asked for VAT-inclusive pricing too. And once the design was completed, and all aspects weighed and measured, VAT-inclusive pricing was adopted. The policy has now been implemented and Bahamian shoppers know that the price they see is the price they pay.

Government cannot "hide" any future tax increase or decrease under either pricing system. The difference is consumers can see any increase or decrease on individual products advertised and priced VAT-inclusively with tags stating Item price + VAT = Total price

Under exclusive pricing, using your logic, they wouldn't know about it until they reached the checkout and were asked for a completely different amount if money than they were expecting to pay.

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chairarranger 5 years, 1 month ago

The people like what they see. With VAT-inclusive pricing they see it.

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chairarranger 5 years, 1 month ago

Incidentally, the clarification on price controls and the removal of all exemptions resulted in a single type/rate consumption tax model ("pure VAT" with inclusive shelf prices). This is where any similarities with Canada ended. Business got what it asked for.

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B_I_D___ 5 years, 1 month ago

Well let's get one thing straight up front...businesses did not WANT VAT and to this day the government has not listened to what we WANT or asked for.

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chairarranger 5 years, 1 month ago

That is usually how tax imposition by governmnent - any tax, any governmnent - works, yes.

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