By NEIL HARTNELL
Tribune Business Editor
nhartnell@tribunemedia.net
Value-Added Tax (VAT) will make the average Bahamian poorer by $2,000 per annum, a well-known accountant warning his 5 per cent inflation prediction may be exceeded by merchants raising prices to coincide with its implementation.
Kendrick Christie, a Grant Thornton (Bahamas) partner, told Tribune Business that companies raising their own margins/mark-ups alongside VAT was something that “needs to be watched closely”.
And he warned that one of VAT’s likely long-term consequences, namely a reduction in discretionary spending by Bahamian consumers, had yet to be fully felt.
He suggested that, in response to the increased living costs, many consumers were likely to adjust their behaviour to compensate, which would negatively impact industries reliant on discretionary spending - the likes of entertainment, restaurants and ‘big-ticket’ items for the home.
Mr Christie, who is also president of the Bahamas chapter of the Association of Certified Fraud Examiners (ACFE), said he was “positive” about how VAT’s implementation had gone and consumer “vigilance” in monitoring prices.
After a personal trip round Nassau-based businesses to assess how they were coping with VAT implementation, Mr Christie said one issue was the lack of co-ordination between management and finance departments on one side, and their front-line point of sale (PoS) staff on the other.
The Grant Thornton (Bahamas) partner said that as a consequence there was too little systems testing and checking that VAT was being calculated properly, resulting in some businesses being unable to charge the new 7.5 per cent tax from the get-go.
“This is one of the concerns in the country; that we don’t have enough persons on the technical side, IT,” Mr Christie told Tribune Business. “We have a limited amount of resources dealing with that issue, and they’re not being held accountable.”
He added that he “took a couple of dollars” for a “buying spree” to assess how the private sector was coping in VAT’s early days, looking in particular for the prominent display of Registration Certificates: Taxpayer Identification Numbers (TINs) on receipts and the display of appropriate pricing and signage.
“I got mixed results, but saw in general where VAT was being charged appropriately,” Mr Christie said. “The second increase I encountered is price increases.
“We see a lot of businesses trying to factor in price increases with the VAT. Even though the VAT as a cost of doing business is passed through to the consumer, they’re trying to put increases in.”
Mr Christie said this practice was something that “needs to be watched closely”. While he had predicted that VAT by itself would have an initial 5 per cent inflationary impact, when combined with merchant price increases this was likely to have a “greater impact”.
“The biggest long-term trend will be price increases, perhaps even beyond 5 per cent, and adjustments in consumer behaviour,” Mr Christie told Tribune Business.
“You’re seeing consumers step up, be vigilant, calculate and make sure the percentage charged is correct, but also adjusting behaviour.
“They’re going to cut down on some of their discretionary spending with entertainment and discretionary industries. That’s going to cause some kind of erosion or dislocation in those areas.”
As a result, Mr Christie said many companies that had increased prices to coincide with VAT may have to rethink and adjust this strategy if consumer demand/volumes slump.
“The estimated impact for every consumer is about $2,000,” he told Tribune Business. “For each citizen, you’ve just got a sudden decrease of $2,000.
“You’re going to have to find ways to adjust your entertainment budget and large type items. But Bahamian consumers are resilient.”
Mr Christie also called on the Government to release some of its VAT ‘revenue windfall’ back into the economy to help get growth moving, suggesting a portion of this income be used to finance small and medium-sized businesses.
He acknowledged that the main goal behind VAT should be to eliminate the fiscal deficit and pay down the $6 billion national debt, adding that there would be “some hiccups” to overcome when businesses filed their first monthly returns at the end of February.
Comments
duppyVAT 9 years, 3 months ago
This is a conservative figure ............... it will also curb our enthusiasm for investing and salary savings. It may discourage Bahamians from participating in the banking sector as well.......... and participate in the black market for everyday goods and services.
B_I_D___ 9 years, 3 months ago
Will also cause companies to downsize...not hire new employees, and maybe even lay off old ones.
DonAnthony 9 years, 3 months ago
I abhor vat as much as anyone, maybe more, but this figure of $2000 per citizen is grossly inflated to say the least and wrong. The government estimates that in a fiscal year vat revenues will total 300 million. With a population of 350,000 this amounts to $857 per citizen on average, a far cry from $2000!
watcher 9 years, 3 months ago
I think it's unfair to use every man, woman and child in your estimate. I know that adults (who incur the vast majority of expenses that attract VAT) will have to pay an extra $2,000 each, children nowhere near as much. Thus the original estimate seems reasonable. Also, when talking of averages, some will be above, some below.....this is how an average is arrived at
chairarranger 9 years, 3 months ago
Our labour force (those adults available for work) stands at 197,333 according to the last Bahamas Labour Force Survey. Assuming your figure of $300m is the approximate VAT revenue collected in year one, it works out to be about $1500 VAT per adult of working age on average.
When our National Debt of $5.8 billion is divided by the same labour force figure, we're looking at roughly $29400 of debt per adult of working age, incurred by successive governments presumably to supply services and spending programs for and to the wider population over many years.
So we need about 20 years of VAT at current rates just to get control of our National Debt, assuming we don't borrow anymore to fund things we cannot actually afford. That may well mean skipping takeaway lunches, yes, as some taxpayers have tragically noted already.
Now we need, as a matter of urgency, a Fiscal Responsibility Act to support the goal of debt reduction, instead of leaving a massive debt for our children and grandchildren to try and pay back when we're all dead and gone (from malnutrition, as a result of having less hamburgers and buckets of fried chicken in our daily diets).
DonAnthony 9 years, 3 months ago
It is very clear from the article that the sample size is every citizen of the Bahamas. It says nothing about the size of the labour force, in fact this the quote from Mr. Christie: The estimated impact for every consumer is about $2,000,” he told Tribune Business. “For each citizen, you’ve just got a sudden decrease of $2,000. So the sample size is 350,000 and the correct amount is $857 per citizen, not $2000. I agree with you completely on the issue of fiscal responsibility, but we need to be data driven ( and accurate!) in making wise arguments and decisions.
chairarranger 9 years, 3 months ago
Agreed, obviously yes, but its not quite a sample size as nothing has been surveyed or sampled, merely a figure plucked randomly from the sky as representing all citizens, some of whom VAT won't affect (e.g. infants and children who don't 'consume' at any great level, but for whom future National Debt repayments will likely be an issue) but simultaneously ignoring a large tranche of tourists who will contribute a reasonable share of annual VAT revenue (but for whom National Debt is not a responsibility).
And that is why using labour force figures, as opposed to every man, woman and child, is particularly useful as a comparison to the figures used in Mr Christie's calculations (and yours). Especially when considering the VAT's stated intention was to generate revenue to reduce the National Debt, and when its the labour force who is group in society most usually targeted by governments for future debt repayment obligations (via general taxation) were a consumption tax not used.
asiseeit 9 years, 3 months ago
When have governments estimates ever been correct. They simply do not know, what they have, what they are spending, or what they have the private sector collecting for them as they can not even collect the taxes owed to them. The Government of the Bahamas is a massive FAILURE! We are ruled by idiots who only care about their power and money.
Observer 9 years, 3 months ago
Instead of 'guess-timating', keep accurate record of VAT paid each week/month. @7.50% one would have to spend more than $27,000.00 per annum. Do a contrast with Income Tax on comparable earning.
DonAnthony 9 years, 3 months ago
Exactly, again this is why the $2000 per citizen is wrong. The average person in this country does not earn, much less spend $27,000 on vatable goods and services.
HarryWyckoff 9 years, 3 months ago
I don't think you understand the word average.
TheMadHatter 9 years, 3 months ago
When you try to compete with rice eaters, you have to learn to eat rice.
TheMadHatter
Sickened 9 years, 3 months ago
Since November of 2014 to now, 90% of everything I have purchased, from garbage bags to a bag of rice to lunch downtown, has gone up, on average 20%. No kidding, no lies, no exaggeration. The ONLY thing that has gone down is gas, by about 20%. Seeing that most of my disposable income is spent on grocery items and lunches, I fully expect my expenses to go up by well over $2,000 p.a. this year.
duppyVAT 9 years, 3 months ago
THATS THE BEST CALCULATION FOR THE DAY ......... . THAT WOULD BE THE SENTIMENTS OF 90% OF BAHAMIANS
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