The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The FNM leader was yesterday warned that exempting ‘breadbasket’ items and utility bills from Value-Added Tax (VAT) was “a double edged sword” that would raise the tax burden for vulnerable Bahamians.

Gowon Bowe, the Bahamas Chamber of Commerce and Employers Confederation’s (BCCEC) chairman, told Tribune Business that the VAT ‘exemptions’ plan announced by Dr Hubert Minnis in the House of Assembly would “not achieve the end goal”.

Dr Minnis, during his 2015-2016 Budget presentation, sought to portray the Christie administration as an uncaring government that had no regard “for the pain and suffering” VAT was inflicting on poor and middle class Bahamians, plus those on fixed incomes such as pensioners.

The FNM leader implied that the Government had abandoned its ‘PLP roots’ by imposing a regressive tax such as 7.5 per cent VAT on items such as books, school supplies and utility bills.

“Thousands of Bahamians are going to bed tonight in the dark without light and water because they are unable to afford the high costs of electricity or pay the water bill, and yet this uncaring PLP government has added the VAT tax of 7.5 per cent to an already high utility bill,” Dr Minnis charged.

“This is wrong, this is heartless, and this is cruel. An FNM government will repeal VAT on breadbasket items; all baby and children’s clothing; electricity; water; all health coverage and insurance.”

Mr Bowe, though, effectively warned Dr Minnis to be careful what he promised, as ‘exempting’ such products from VAT could both increase their cost - and that of other products - for Bahamian consumers.

“I would trust that while that is the position he’s taking because he’s not in the seat of having to make that choice,” Mr Bowe told Tribune Business.

“Upon coming into that seat, it would be wise [for him] to take professional and economic advice to ensure the choices he makes to assist the under-privileged achieve the end goal.

“On the face of it, making items exempt does not do so.”

Dr Minnis’s comments, while likely striking a populist chord with some Bahamians, goes against the VAT model backed by the Bahamian private sector - that of having the broadest tax base possible, so that the rate can be kept low.

Owen Arthur, the former Barbados prime minister, also warned in the run-up to Bahamian VAT implementation that his greatest regret was permitting so many ‘exemptions’ in his home country.

This had ultimately resulted in Barbados having to raise its VAT rate to double digits, with the burden borne by just a few industries.

And Mr Bowe reiterated that increasing the number of VAT ‘exemptions’ in the Bahamas “does not achieve the end goal they [the FNM] are seeking”.

‘Exempting’ products from VAT means that, while end-consumers do not pay the 7.5 per cent levy on their purchases, businesses are unable to reclaim their input costs in proportion to the volume of ‘exempt’ goods they sell.

For example, if 60 per cent of a company’s inventory was VAT-able, and 40 per cent ‘exempt’, that business would be unable to reclaim 40 per cent of the VAT paid on its ‘input’ costs - such as rent and utilities.

This, in turn, increases that business’s operating costs, forcing it to increase prices to compensate. These price increases might encompass a broader base of goods, and greater rises, than if all goods had been VAT-able.

Referring to the products Dr Minnis wants to ‘exempt’, Mr Bowe explained: “Taking VAT off those items doesn’t achieve the end goal because if you reduce the base you charge VAT on, it increases the cost of all other items on which you charge VAT.

“Persons with low incomes do not buy breadbasket items only. There’s a double-edged sword if you eliminate or reduce VAT on breadbasket items, because at the end of the day, if you exempt charging it and businesses do not claim back their VAT inputs, the price will go up.”

Mr Bowe added that wide-ranging VAT exemptions would also complicate matters for the private sector from a “systems and pricing” perspective. They would do the same for compliance and return filing.

“It sounds magnanimous or generous to say exempt items, but the world of VAT exemptions is a double-edged sword,” he warned Dr Minnis.

Rather than assist poor and low income Bahamians via exemptions, the VAT model was intended to allocate a portion of the revenue raised to the social security budget.