Gov’t ‘opening Pandora’s Box’ with VAT breaks plan

As of Monday, May 29, 2017

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Government was yesterday warned that its VAT ‘exemptions’ plan will “open up a Pandora’s Box” of demands for ever-increasing concessions that may undermine the Bahamas’ low-tax model.

Robert Myers, a principal with the Organisation for Responsible Governance (ORG), told Tribune Business that the Minnis administration’s election campaign promises could turn VAT into an inefficient, complex tax that increased both business and Government administration costs.

And apart from undermining the Bahamas’ low-rate, broad-based 7.5 per cent VAT model, Mr Myers said the Government’s ‘exemptions’ proposal could encourage numerous industries and ‘special interests’ to start lobbying for the same treatment for themselves.

“It seems that they want to go ahead with these VAT concessions, and that makes me nervous,” he told this newspaper. “I was under the impression that this was going to go away, but it seems now that they’re really looking to advance that.

“I just think, from an ORG standpoint, it may not be the right thing to do. It just complicates the tax system that the private sector has to manage.”

Mr Myers added his voice to others expressing concern over the newly-elected government’s VAT plans after last week’s ‘Speech from the Throne’ appeared to confirm its intentions to follow through with campaign trail promises.

The address appeared to narrow, or tone down, the Free National Movement’s (FNM) proposals by stating the Government would “take action to effect a reduction of VAT on breadbasket items” as opposed to its complete elimination on these products.

The scope of the VAT ‘exemptions’ plan also seemed to be reduced, as the Prime Minister had said utility bills (electricity and water), health and education would also be exempt from the 7.5 per cent levy. The Speech from the Throne, though, implied that only basic food staples are now included, although Deputy Prime Minister, K P Turnquest, subsequently affirmed the Government would live up to its pledges.

Mr Myers, meanwhile, 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.

He argued that it should instead reduce VAT’s burden on poor and lower income Bahamians by redeploying a portion of VAT revenues to “the needy” via an increased Department of Social Services budget - as had been agreed between the private sector and former Christie administration.

“You’re creating a tax break for those that don’t need it,” Mr Myers told Tribune Business. “The higher income people don’t need a tax break on rice and things like that.

“Don’t start complicating the tax system by exempting breadbasket items from VAT, because you’re going to open Pandora’s Box. Someone else will come in and say they need a concession, and the next thing you know we’ll be like the UK, where VAT is enormously complex and they’re trying to simplify it.”

The UK’s standard VAT rate was raised to the current 20 per cent in 2011, making it the complete opposite of the Bahamian model. This nation initially chose the same route, and went for a 15 per cent VAT rate, until the Organisation for Responsible Taxation - at the time headed by Mr Myers - successfully persuaded the Christie administration to go the low-rate, broad-based route with minimal exemptions.

Owen Arthur, the former Barbados prime minister, in a speech delivered in the Bahamas prior to this nation’s introduction of VAT, warned against the exact action now being considered by the Minnis administration.

Mr Arthur said one of his greatest regrets was that his government succumbed to requests for VAT exemptions from Barbados’s key industries and corporate interests, which ultimately resulted in today’s narrower base and higher 17.5 per cent rate.

Barbados’s experience is what Mr Myers fears could happen in the Bahamas should the new government persist, and the ORG principal pointed out that increased exemptions would mean Bahamian retailers and utilities reclaiming a smaller percentage of their VAT ‘input’ payments.

This, he warned, would result in these businesses increasing consumer prices to compensate for higher production costs caused by the lack of VAT ‘offset’.

“They’re going to have to raise prices on other things,” Mr Myers explained, “and it makes it very complex for us [the private sector] to manage. You run the risk of opening up a Pandora’s Box and making it an inefficient tax. It will also make it harder for the audit people at the Inland Revenue to track, not just the company. These are concessions, these are not.

“You will reduce the ease of doing business, and increase the cost of doing business. Why does the Government think it knows what the needy or low income people are going to eat? Why do they have the right to dictate what lower income people? Give them funds and an allowance to spend on what they need. Why should we dictate that they eat corn beef, grits?

“It’s wrong all the way around. It just doesn’t add up. There’s got to be a better way to help the needy. No one I’ve spoken to is against doing so. We’re all in favour of it. It’s how we go about it.”

Mr Myers suggested that the Government, private sector, civil society and labour work together to develop a “consensus” on “what makes most sense to ease the cost for the needy and low income people”, suggesting Social Services - not VAT ‘exemptions’ - was the better delivery mechanism.

With the Bahamas having received international “accolades” for its VAT model and smooth implementation, and the tax “ticking all the boxes”, he added: “Don’t start messing with the VAT. When you start down that road, it’s going to be a nightmare.

“We don’t need to compromise something that so far has been very efficient, very compliant, very effective and simple. Let’s get the stakeholders together and come up with a plan for the needy. We understand the need; they’re right, but let’s do it in a way that doesn’t make everyone’s lives complicated, including the Government’s, because the Government has to keep a handle on all this stuff.”

DDK 6 years, 10 months ago

If we have to keep the dreaded VAT, I concur with Mr. Myers. However, the PEOPLE would benefit more with its complete elimination and the enforcement of a properly collectible, accountable and fair level of import duty. Then no-one will be inflating prices to ensure that the VAT credit collected is sufficient to keep business profitable. It's a stupid system and a crippling tax.

Utilities, medical services and educational services should not be taxed in any way shape or form.

Publius 6 years, 10 months ago

The new government is going down the same path as always, which is to ignore the obvious in order to suit what they believe to be popular sentiment.

DDK 6 years, 10 months ago

CUSTOMS DUTY + VAT = DISASTER FOR THE PEOPLE

Well_mudda_take_sic 6 years, 10 months ago

It's high time for a progressive tax structure to be introduced that would ensure the likes of Sir Snake, Brent & Craig Symonette, D'Aguilar, the Greeks, the Maynard-Gidson family and others like them pay their fair share of the taxes Minnis reckons he needs to run the most efficient and cost effective government possible. The poor and the middle class can no longer carry the lion's share of our nation's tax burden! DO YOU HEAR US DR. MINNIS?! As you put it, "It's the people's time" and we want you to make good on your many promises to afford us much needed relief from the current very regressive tax structure that is so unfair to all but the wealthy in our society.

Porcupine 6 years, 10 months ago

Well mudda,

Absolutely correct. Thank you for your comment. It is not just "the people's time. It is "the people's money."

sheeprunner12 6 years, 10 months ago

The best thing that Minnis et. al. can do is leave VAT as it is and just clean up its administration and roll back all of the frill taxes promised to relieve a semblance of "double taxation" ..... Do not experiment with this Pandora's Box (a PLP chickcharnie may escape) ....... and for Jesus' sake, collect the other government taxes (that is the real problem in our country)

Socrates 6 years, 10 months ago

taxation is a fact of life.. one of the reasons we are so deep in debt is because we dont want to collect/increase taxes where required, but we expect to keep spending more and more.. how is it we all understand why we need a pay increase, but govt doesn't need one (more tax income)? only the Arabs (according to google search) seem to be able to spend without taxation and even they will soon have VAT...

Porcupine 6 years, 10 months ago

Socrates, Taxes are a fact of life. Yes, but how taxes are raised is completely arbitrary. When you say Arabs, you obscure any understanding. If you mean the states which get most of their revenue from petro dollars, then yes you are correct. However, your point only serves to distract thinking. The question isn't just government spending. It is the millions upon millions of dollars that have been squandered, stolen and misappropriated by so many Bahamians, be they politicians, bankers, or opportunist businessmen. The list is endless here. Over priced government contracts, unpaid loans to BOB, outright theft and a national work ethic that leaves much to be desired. Taxes are necessary, yes. Do we spend the tax money, account for it properly, and participate in sharing the tax burden here in The Bahamas. The answer is a resounding NO. The government's major failure is not in spending too much. The major failing is a lack of accountability, outright theft and an uneducated populace that doesn't give a shit. These are all things the government can and should do to change the equation. The issue is are we getting our money's worth for our taxes? The answer is no and we want to simply blame the "government" instead of admitting we have a society that worships the corrupt rich, has few morals, cares little about education, and overall seems to care less about their fellow human beings. And yet, we call ourselves a Christian country. How sad!!!! The Bahamian government is made up of Bahamians. People who don't have a problem "borrowing" millions of dollars of the people's money, stealing, getting special deals from foreign investors, corrupting the judicial process, and on and on. And then, getting re-elected because they did such a splendid job controlling government spending. We are all suffering from a lack of Christian values and a horrible education.

B_I_D___ 6 years, 10 months ago

Leave VAT alone...reduce customs duties with the aim of eventually eliminating customs duties as promised when VAT was originally discussed!!

DDK 6 years, 10 months ago

If Government would do as was originally promised, we could live with the 7.5% VAT, as long as there is no double taxation. Still feel VAT should be eliminated on all medical and educational services. Either that or eliminate VAT and transform customs import duty to a simple across the board duty (suggest 25%) on all items entering the Bahamas. Enforce this collection and prosecute all smugglers. Fine them on the spot, say ten times the duty due. Dismissal and fines for any customs personnel participating in smuggling. Also feel EVERYONE in the Bahamas should pay the tax, no exemptions to investors. Allowing them to invest in our beautiful country should be thanks enough!

Porcupine 6 years, 10 months ago

The history of economic thought, as well as, any semblance of fairness has been educated out of our heads. VAT is a regressive tax. Of course business people love VAT. They don't pay it. Businesses get to pass on VAT to the people and the taxes come out of working people's wages every time they purchase anything, or pay for any service. Please watch Greece closely. The same thing will be happening here. As it does with EVERY other country that follows the IMF dictates and the geniuses that are in control of most every countries financial policies now. The financial class does not give a shit about the people. They only care about making more money for themselves. Just like the parasitic web shops here in The Bahamas. Our educational system and think tanks, all sponsored by the super rich and big business has shaped our thinking about taxation to the point where the discussion is limited to utter foolishness. Just like the Tribune only ever interviewing the finance and business sector. Politicians have to toe the line for policies that are "politically viable". And, our populace globally has been so dumbed down, so consumed with the crap on Facebook, so distracted by reality shows and the stupidity on TV that very, very few people, even the so-called educated people understand how badly the 99% are getting screwed. Don't complain about the Chinese taking over. Quit complaining that government wastes our money. We hand our country over to others with every dear dollar that is spent in the web shops, the liquor stores and every other waste of valuable money which is then used to control our politicians. For God's sake. Is the overwhelming evidence not everywhere? Does nobody take an interest in studying the recent history of what has been going on around the world with regard to taxation, IMF loans, the World Bank, the European Central Bank, and the increasing inequality that is happening at an increasing rate. How does an educated businessperson explain this? That the rich are so much more productive and worthy of their increasing riches. Is that what we see here in The Bahamas? It is tax policy. And, everyone seems to be so busy either making money or working two jobs that they don't have time to do any reading on the subject. Ok, if you don't want to read try these two videos.

https://www.youtube.com/watch?v=XlhFM...">https://www.youtube.com/watch?v=XlhFM...

https://www.youtube.com/watch?v=CGV11...">https://www.youtube.com/watch?v=CGV11...

We, as a world, are woefully uneducated about the realities of where humanity is headed. Here in The Bahamas is no exception. I see no business leader or politician who has the brains or the ethical fortitude to lead this country forward.

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