The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

THE private sector "is glad" the Government deferred its Value-Added Tax (VAT) campaign promises, as these would have "defeated the purpose" of the Bahamas' chosen taxation model.

Edison Sumner, the Bahamas Chamber of Commerce and Employers Confederation's (BCCEC) chief executive, told Tribune Business it was "a prudent decision" to leave the Government's main revenue source well alone in the 2017-2018 Budget.

He added that the Minnis administration's pledges to exempt 'breadbasket' food items, and key utilities and services, from VAT required careful study and "can't be done in a one-shot deal".

Mr Sumner also warned that implementation of the proposed exemptions would "require a lot more work and effort than meets the eye", with merchants having to adjust their point-of-sale (POS) and VAT accounting/reporting systems, and the Government likewise.

"We're actually glad that the Government decided not to proceed with that at the moment," Mr Sumner told this newspaper of the VAT promises.

"I think the whole idea of VAT reductions or exemptions would require a lot more work and effort than meets the eye."

The Chamber chief executive said the private sector body, and affiliated industry organisations, "spent an awful lot of time" prior to VAT's implementation on providing the then-Christie administration with advice and data to support their calls for a low-rate, broad-based model with minimal exemptions.

"If you're talking about extending exemptions, it defeats the purpose of the VAT in the first place," Mr Sumner explained. "The idea was to make VAT a very efficient tax in the country, and based on all the options we had at the time, VAT was the most viable."

But Dr Hubert Minnis, during the election campaign, promised to 'exempt' so-called 'breadbasket' food items from the 7.5 per cent levy. He also promised to remove VAT from utility bills (light and water); healthcare and education.

The now-Prime Minister justified the move on the grounds that this would reduce the burden of VAT, and relatively high living costs, on lower income Bahamians.

However, Dr Minnis and the Free National Movement (FNM) were repeatedly warned against doing so by the International Monetary Fund (IMF), Bahamian private sector and Opposition parties on the basis that it would both undermine the chosen VAT model and create numerous unintended consequences.

The VAT-related pledges were subsequently 'watered down' in the Speech from the Throne, which talked only of 'reducing' - not eliminating VAT - on 'breadbasket' food items. Of the other services, there was no mention.

And KP Turnquest, minister of finance, said following last week's Budget presentation that the Government had been forced to delay implementation of its VAT-related promises because the Bahamas' fiscal weakness required a more conservative approach,

"That's not going to happen immediately," he conceded. "That's one of the trade-offs that we have to make because we recognised that, for instance, the Ministry of Works overspent by $75 million in this last year.

"We immediately, literally two days ago, had to say: 'Wait a minute; let's be conservative before we go out and give concessions. Let's make sure that we have the house covered'."

The Government instead concentrated its tax adjustments on Customs duties and Excise tax reductions/eliminations, something that had also been called for by the private sector.

Mr Sumner reiterated that proposals to introduce numerous VAT exemptions required "very careful consideration", and added: "It can't be done in a one-shot deal.

"To consider exemptions at this stage and readjust VAT will be an onerous provision. It will take time to do it properly; not only the Government but merchants will have to adjust their point-of-sale systems and VAT systems."

Suggesting that there be "full consultation" should the Minnis administration decide to move ahead with its VAT 'exemptions' policy, the Chamber chief executive called for all parties to revisit the studies and reports conducted for the private sector on tax reform.

He also said there were numerous unanswered questions regarding the Government's plans, including which foods and goods would be included in the definition of 'breadbasket' items.

Mr Sumner also queried whether the VAT would be reduced or eliminated on the 'exempt' goods and services and, if the former option was chosen, how much the reduction would be. He also asked if 'zero-rating' was an option.

"The fact the Minister of Finance indicated they'd decided to defer the decision is a prudent move," he told Tribune Business. "Rather than offer all these exemptions on breadbasket items, put a portion of the VAT revenues into a social security fund to support those individuals who may need assistance."

This echoes a call made last week by Robert Myers, a principal with the Organisation for Responsible Governance(ORG), who last week also warned that the VAT 'exemptions' plan will "open up a Pandora's Box" of demands for ever-increasing concessions that may undermine the low-tax model.

He warned that the Minnis administration's election campaign promises could turn VAT into an inefficient, complex tax that increased both business and Government administration costs, while encouraging numerous industries and 'special interests' to start lobbying for the same treatment for themselves.

Mr Myers suggested that the Government's VAT 'exemptions' plan would force merchants to increase consumer prices on other products, while also acting as an unnecessary 'tax break' for rich and upper middle class Bahamians.

Increased exemptions would mean Bahamian retailers and utilities reclaiming a smaller percentage of their VAT 'input' payments, resulting in these businesses increasing consumer prices to compensate for higher production costs caused by the lack of VAT 'offset'.