Bahamas has region’s ‘most productive’ VAT


Tribune Business Editor


The Bahamas has the most productive Value-Added Tax (VAT) regime in the Caribbean, an IMF paper yesterday holding out its ‘low rate, broad base’ structure as a model for the entire region.

A ‘working paper’ on tax administration reforms in the Caribbean found that the Bahamas’ VAT productivity/efficiency even exceeded the average across OECD member states, plus European and Asian nations.

The paper’s author, Stephane Schlotterbeck, measuring ‘productivity’ as the ratio of actual VAT revenues collected to potential collection if all domestic consumption was taxed at the same rate, found that the Caribbean average was “slightly below” international standards.

“It ranges from 0.36 in St. Lucia to 0.79 in the Bahamas, with an average of 0.54 in the region compared to 0.55 in OECD countries, 0.59 in Europe, and 0.64 in Asia and Pacific,” Mr Schlotterbeck found.

“A low productivity ratio indicates erosion of the tax base, exemptions, excessive zero-rating, concessional rates, evasion, and weak enforcement.”

The Bahamas’ high VAT productivity rating likely results from its ‘low rate, broad base’ model, which has to-date avoided the “excessive” exemptions and zero-rating treatments granted to numerous goods and industries by other Caribbean countries.

It also reflects the ‘newness’ of the Bahamas’ VAT regime, and the fact that unscrupulous businesses and registrants have yet to develop sophisticated evasion and under-reporting techniques.

The IMF paper indicated that the Bahamas’ VAT structure, which the Christie administration ultimately accepted following extensive lobbying by the private sector, was a model that the rest of the Caribbean should look to.

Noting that the Bahamas’ VAT rate was half that in many other Caribbean nations, the paper said: “The recent Bahamian experience indicates that introducing a broad-based VAT with minimum exemptions allows for the application of a lower tax rate (at 7.5 per cent compared to 15–17 per cent in the rest of the region).”

The IMF paper and its author also found that the Government’s total tax revenues, as a percentage of gross domestic product (GDP), rose by 4.4 percentage points after VAT’s first full year compared to pre-implementation.

“In the Bahamas, total revenue collection increased by 39 per cent between fiscal year 2013-2014 (prior to VAT introduction) and fiscal year 2015-2016 (after one full year of VAT operations),” the IMF paper said.

Those two years were chosen because VAT was introduced on January 1, 2015, half-way through the 2014-2015 fiscal year, meaning the latter was not suitable for comparison purposes.

The IMF paper also disclosed that the Bahamas’ enjoys one of the best on-time VAT filing compliance rates, with 75 per cent of its 6,710 tax-paying registrants hitting the payment deadlines.

Only Bermuda, Dominica and Grenada, with VAT on-time filing compliance ratios of between 80-81 per cent, were shown as performing better than the Bahamas, with this nation well ahead of the 62 per cent regional average.

However, the IMF paper said the Bahamas’ Department of Inland Revenue, as the central tax administration authority, had the second highest population-to-staff ratio in the Caribbean.

It revealed that only Haiti, where there is 8,600 persons for every tax administration staffer, had a higher ratio than the Bahamas’ 2,549 persons per tax officer.

The IMF paper effectively sets out a ‘road map’ for the Bahamas on what not to do with its VAT regime, setting out many of the challenges the Government and Department of Inland Revenue will likely face, and how this nation can learn from the experience of other Caribbean nations.

Warning against the granting of widespread VAT ‘exemptions’ and zero-rated treatment, the paper said: “In a number of countries, the expansion of zero-rated domestic supplies of goods and services has contributed to building up a large volume of VAT credits, including in the retail sectors.

“This has increased the number of refund claims and put tax administrations under pressure to refund the credits within acceptable periods (good practice is 30 days). In many cases, the turnaround time for reimbursing VAT credits exceeds 90 days, and quite often it is not monitored at all.....

“In Trinidad and Tobago, VAT refunds have been temporarily suspended due to an insufficient budget. Refund delays and related cash flow issues have been the primary reasons for granting VAT exemptions to investors.”

The IMF paper suggested the deferment of VAT on capital goods imports, such as machinery and equipment, plus raw materials and spare parts, rather than use exemptions.

However, the political pressure for the Bahamas to go down the VAT ‘exemptions’ route is mounting, with FNM leader, Dr Hubert Minnis, on Wednesday night repeating previous campaign pledges to remove the tax from so-called ‘breadbasket’ items.

He also promised to exempt electricity and water bills; education; and healthcare from VAT, adding: “This will provide tremendous savings for Bahamians. These savings will make a difference for Bahamians, who will now have more money to buy food, more money to pay rent, more money to pay expenses for their children, more money to put back in their businesses, and more money to pay other bills.

“The removal of VAT in these specific areas will bring relief to Bahamians who are struggling to make ends meet. It will bring relief to the middle class, to families in general, and to small business people.”

However, those companies and industries treated as VAT ‘exempt’ will be unable to recover the 7.5 per cent levy paid on their ‘input’ costs if they cannot charge the tax to their consumers.

As a result, under Dr Minnis’s plan, the cost structure for entities like Bahamas Power & Light (BPL) and the Water & Sewerage Corporation will increase, not decrease. And these increases will be passed on to consumers in the form of higher bills - the opposite of what Dr Minnis is intending.

“VATs have been effective in terms of mobilising additional tax revenues since their introduction in Caribbean countries,” the IMF paper said.

“The VAT has proven to be more effective than the consumption taxes it replaced. However, its contribution should have been much greater. On average, an increase of 20 per cent of VAT productivity for the region would represent an increase of 2 per cent of VAT revenues in terms of the GDP.

“Initially intended to be a broad-based, single rate tax, the VAT’s legislation has deviated from these objectives. Zero-rating of domestic supplies, generous exemptions, lower rating of tourism activities and low registration thresholds have affected its performance negatively and compromised administrative efforts. This paper argues that, instead of eliminating the VAT, the objective should be to strengthen it.”


Well_mudda_take_sic 5 years, 6 months ago

Translation: The IMF is strongly encouraging our government to increase the VAT rate from 7.50% to the originally proposed 15%. What most Bahamians fail to realize is that the IMF is a U.S. government controlled agency charged with the mandate of effectively bankrupting third world countries so that U.S. corporate interests can acquire their natural resources, utility enterprises and prime real estate, etc., for pennies on the dollar. If the government of the third world country refuses to co-operate with the IMF after being bankrupted (as was the case when the Venezuelan government under Chavez refused to turn over the bulk of the profits from its oil fields to U.S. corporate interests like Exxon Mobile and Chevron), the heavy arm of the U.S. government teaches the third world country a horrible lesson by shutting it down and relegating it to failed statehood. The average Venezuelan has lost 28 pounds over the past 18 months due to serious food shortages and has seen their currency debased to worthlessness. As for tooth paste, washing soap and detergent, electricity, toilet paper, etc.....these are now all luxuries well beyond the reach of the average Venezuelan. As for the Bahamas, our time is drawing near because our governments are much too stupid to realize what the end game is all about when it comes to taking on unsustainable levels of external (foreign) debt and taxing the private sector out of business.


sheeprunner12 5 years, 6 months ago

The IMF is not a friend to The Bahamas ............. We do not need them meddling in our political or economic affairs ........ That is why we are on a slippery-slope that may lead to our national demise ....... We need a leader who will stand up and state the plain truth about our fiscal situation ....... The PLP brags that Minnis said that we were "in a wheelchair" in 2012 ...... but Perry has reduced us to a comatose state ........ We need the DOC now


OMG 5 years, 6 months ago

What people don't realise is that the PLP or FNM will have no choice about IMF involvement if spending is not curbed and the national debt reduced. I don't think the average Bahamian realizes that so much of the nations cash is going to repay debts that little is left to renew the power plants or water supply.


Reality_Check 5 years, 6 months ago

And my God, to think that Minnis is even dumber than Christie when it comes to public finances and the need for prudent fiscal responsibility. I shudder at the very thought of Minnis ever becoming PM and also taking on the role of Minister of Finance as has been done by both Ingraham and Christie.


sheeprunner12 5 years, 6 months ago

Minnis has already said that he will take NO Ministerial portfolio ....... and that will be the best thing possible ....... He needs to pick a 10-12 person Cabinet and be a CEO ......... He needs to change the PM managerial style of the past


Well_mudda_take_sic 5 years, 6 months ago

Minnis can't pick a disease free prostitute in a high class brothel but you expect him to be able to pick 12 competent cabinet members!! Are you for real? Just look at his 'piss poor' judgement to date in picking people for any political task!!!!


ThisIsOurs 5 years, 6 months ago

Lol. You was with him eh...lmao..:).


Well_mudda_take_sic 5 years, 6 months ago

Good one, but "No". I'm a germaphobe and wouldn't survive a second in a brothel.


DDK 5 years, 6 months ago

Why does the IMF have to control our lives? The VAT imposed by government is insidious and invasive in its current state AND HAS HAD AN EXTREMEMLY NEGATIVE IMPACT ON OUR ECONOMY. What does the esteemed IMF have to say about all the gambling houses on every street corner?


DDK 5 years, 6 months ago

Strange, the timing of the issue of this report, or am I just being paranoid? Does the International Monetary Fund jump into anyone's pocket? The report does not seem to mention the rate of import taxation on goods in the other countries, or whether they tax tax. To borrow a phrase from lkalikl f--- the IMF!


sheeprunner12 5 years, 6 months ago

The average European country's citizens pay 45% of their salaries to the State as taxes ........ Bahamians pay less than 20% ........... so, do not complain ....... You get what you pay for


OldFort2012 5 years, 6 months ago

Yes, but the average Europeans gets in return: an efficient police force, low crime rates, the rule of law, defence, free healthcare, good roads, good education and corruption free politics. We get...nothing.


The_Oracle 5 years, 6 months ago

The IMF can tell us what to do because we have borrowed an average of $50 million a year from them for near 50 years! It was the IMF who devalued the Jamaican currency. Now at 100-1US


Chucky 5 years, 6 months ago

might be on the high end of the productive scale if generating revenue is all that you wish to measure.

likely we at the bottom of the productive scale when it comes to how well the vat money is utilized........

Let's face it, we might lead in some things, but not financing, perhaps obeastity (pun intended), least educated nation in the region, corruption, perhaps soon on violent crime, definitely number one in the category of "systemic indifference".......

LOL all sad, as sadly it's all true......................


Porcupine 5 years, 6 months ago

Good comments. The IMF is there to promote economic slavery. Read John Perkins, Confessions of an Economic Hitman. Once the politicians figure out that borrowing upon more borrowing can keep them in office, it becomes difficult for them to act in the best interest of the country. Too much of OUR money goes to pay the interest on these onerous loans. The Bahamas has more than enough resources to be completely self sufficient. We have the fish, crawfish, sponge, conch, plenty of arable land, and a strong tourist economy. We also have the ability to print our own money. Which we have a right to do. Why isn't anyone talking about this? Because the economists, and the bankers, and the Ministry of Finace and people who work for the IMF can only see what they are taught in school. Which is very little of the truth. But again, as I say, there are no consequences for bad behaviour in The Bahamas. Our jails shouldn't be filled with guys who smoke weed. They should be filled with the corrupt politicians who have stolen this country blind. Public servants my ass.


Socrates 5 years, 6 months ago

the real test for the effectiveness of VAT collections will be once bahamians figure out how to dodge or avoid paying it.. this will come and of course all know that we don't prosecute dodgers (unless there is some other motive to do it.. look at property tax, hardly anyone paid and nobody prosecuted). if we are able to handle that, then we can start the praise..


John 5 years, 6 months ago

The success of the Vat tax is because many Bahamians are willing to rescue their country from financial distress. They don't want to see it fail. So businesses and individuals were willing to partner with the government under the premise that by working together the problem could be fixed and the country would not go over the financial cliff. But guess who did not keep their share of the bargain?


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