By NEIL HARTNELL
Tribune Business Editor
nhartnell@tribunemedia.net
A former Minister in the Christie Cabinet has acknowledged that Bahamian businesses experienced an average 10-20 per cent revenue reduction in 2015 post-Value-Added Tax’s (VAT) introduction, and called on his former colleagues to focus on economic growth,
Ryan Pinder, the former financial services minister, while acknowledging the Government’s progress in shrinking the fiscal deficit by almost 75 per cent within three years, implied that it should now shift its focus from austerity.
Focusing on the Government’s four medium-term fiscal consolidation objectives, Mr Pinder told the House of Assembly that
“a dedicated focus on growing the economy is the most important part”.
“ If you would survey businesses throughout the Bahamas, they would tell you in general they experienced a 10-20 per cent reduction in business in calendar year 2015,” Mr Pinder said during the mid-year Budget debate.
“ This has a direct effect on Bahamians throughout the country. Less revenues mean less profits; less profits mean less investment in business; less investment in business means fewer pay raises and ultimately a reduction in jobs to Bahamians.
“Growing the economy has the most direct effect on relieving the strains on Bahamians, has the most direct effect of raising government revenue and improving the standard of living here in the Bahamas. All of these elements are interconnected.”
Backing the Government’s plans to modernise and upgrade the Bahamas’ tax administration system, Mr Pinder said it was vital that this be perceived as “effective, efficient and fair” to foster public confidence.
However, he urged the Christie administration to avoid a “one size fits all” approach to tax enforcement and compliance, suggesting that it adopt a ‘lighter touch’ approach to smaller businesses and professionals.
“Generally, the imposition of rigid compliance regimes to these sectors without considering the effect on them leads to low taxpayer morale, a perception of unfairness, and frequently the cost to the tax administrators of enforcement is far in excess of the tax collected,” Mr Pinder explained.
“There are a few instances where I think the Government, in the interest of efficiencies in revenue administration, are causing concerns or even inefficiencies with respect to the small taxpayer.”
Citing examples, Mr Pinder said that while the Government’s intent to move to electronic payments for all its suppliers was commendable, this would likely create “obstacles” for small, cash-based businesses.
“It is my recommendation that there be a threshold where payments are electronic, and below that threshold payments could still be processed by cheque,” he said.
The former minister also backed calls by the Bahamas Chamber of Commerce and Employers Confederation (BCCEC) that the threshold for hiring an accountant to verify turnovers for Business Licence purposes be increased from $100,000 to $400,000.
“Small businesses are experiencing tremendous frustration and cost with this requirement,” Mr Pinder said.
“When there is no regard to the scale of the taxpayer in the enforcement, then the perception develops that this Government is not supportive of small business, that the taxation reforms penalise those who make up a nominal amount of tax revenue, and creates unnecessary frustration.
“Granted, it might be only perception, but in these instances, and instances of people in business, perception too often is reality. We as a Government have to give the perception of what I know our intent is; to be sensitive to business, to small business in particular, and to not unnecessarily provide obstacle to their operations and growth.”
Mr Pinder said good tax policy was founded on principles of certainty, simplicity and continuity - all of which, if followed, generated confidence among taxpayers.
Arguing that aspects of VAT would require ongoing clarification from the Government, he added: “There have been observations by certain members of the private sector that the technicians associated with VAT enforcement appear to be unilaterally interpreting the application of VAT laws in situations that may not have been foreseen.
“Before undertaking these unilateral interpretations, thorough discussion should be undertaken with these parties. There are also similar concerns with respect to the enforcement side, and that some may have regarded actions to be heavy-handed in matters that could easily be resolved through continued dialogue and consultation.
“I raise these issues as I am supportive of tax reform in the Bahamas, and it is in everyone’s best interest to ensure there is no confusion; that there is predictability, clarity and simplicity in the application.”
Mr Pinder also hit at the Free National Movement’s (FNM) promised to amend the VAT Act by exempting food, healthcare and other ‘breadbasket’ items from the 7.5 per cent levy, suggesting that such a move would increase business costs and, ultimately, force a rise in the tax rate.
“They have advocated that they intend on putting exemptions to VAT in for breadbasket items and health care,” he added.
“Not only will this result in an increase in prices of other food items to Bahamians, having a greater inflationary effect, but I ask the Opposition: What rate adjustment do they propose to make – what will be the anticipated new VAT rate? Do they intend on increasing it to 10 per cent, maybe 12 per cent, maybe as high as 15 per cent?
“You can’t make items exempt from VAT and not raise the rate; you have to make up the revenue somewhere.”
Mr Pinder challenges the FNM to publish its rationale for such a move, and asked if it had consulted with the private sector.
“Shooting from the hip for political gain and manipulation without proper evaluation and analysis, especially in areas such as taxation and government revenue, is very dangerous, and reckless,” he said.
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