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$400m Extra In Vat?: 'Not A Chance In Hell'

Reader poll

What grade would you give the government's 2018/2019 Budget?

  • A 8%
  • B 14%
  • C 9%
  • D 11%
  • E 6%
  • F 30%
  • U 21%

705 total votes.

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

There is "not a chance in hell" that the 60 percent VAT rate increase will generate the extra $400m revenue the government is targeting, a prominent businessman is warning.

Sir Franklyn Wilson told Tribune Business that it was "unwise" for the Minnis administration to assume a 12 percent VAT will deliver a revenue increase of the same proportion, as the hike will "incentivise" Bahamians to find legal ways to avoid the tax.

Describing himself as "shell shocked" by Wednesday's budget, the Arawak Homes chairman said he was "at a loss to understand why" the government was ignoring all research and advice by ditching the low-rate, "minimal exemptions" VAT model.

He also pointed to several contradictions in the budget communication, in particular the "travel exemption" increase to $500 that coincides with the duty waiver for footwear and clothing retailers.

Questioning "why anyone would go into the retail business", Sir Franklyn said the VAT-induced reduction in consumer spending power was bound to have "significant repercussions" for the Bahamian economy and its projected growth rates.

And he also challenged the projections for an ever-increasing civil service wage bill, given that "the whole thrust of what is being said is to drive personal emoluments down long-term".

Sir Franklyn said it was vital that KP Turnquest, deputy prime minister, provide further rationale for the pain the 2018-2019 budget will inflict when he kicks-off debate this Wednesday.

Otherwise, the Sunshine Holdings chief warned, the confidence of many Bahamians will be shaken through the belief that the Government is "making things up on the fly".

"I'm still so shell shocked," Sir Franklyn told Tribune Business of the Budget. "I haven't had a chance to really digest it fully, but my first blush is this is really, really bad news. This is really troubling. What else could you say?

"What I'm fearful of, and fearful is not the right term, is the Government is not going to get the revenue it thinks it's going to get from this initiative. They're providing sufficient incentive now for people to get into legitimate tax avoidance.

"You cannot assume that, because you got so much money at 7.5 per cent, if you go to 12 per cent it's a proportionate increase," Sir Franklyn continued. "My position is that it's not prudent. There's not a chance in hell of that happening.

"People will find legitimate ways to get around it. They are giving incentives to find ways to be more aggressive in avoiding VAT. He'd [Mr Turnquest] better hope and pray the economy grows if he's to get that revenue."

Such a proportionate increase is exactly what the Government's Budget numbers appear to be banking on. They suggest that a 60 per cent VAT rate increase, going from 7.5 per cent to 12 per cent, will boost gross VAT revenues from the $663.562 million forecast in 2017-2018 to $1.062 billion in the upcoming 2018-2019 fiscal year.

This translates into a 60 per cent revenue increase, matching the magnitude of the rate rise. Yet Sir Franklyn reiterated: "It appears to me that he [Mr Turnquest] will not get 60 per cent more revenues because he increased the rate 60 per cent. There's not a chance in hell of that happening.

"Once you go down this path, you're creating more and more incentive for people to look to avoid this tax.... I am at a loss to understand why. All the studies showed and established that the best model was a low-rate, minimal exemptions VAT. There was a reason for that.

"I don't understand this. I am at a loss to understand the logic behind this Budget. I'm looking forward to the Minister's address on the second reading, where he will provide the rationale for this."

Should the Government proceed with its VAT increase plan, the Bahamas will have come 'full circle' in just five years. For it will have ended up back where it started in 2013, when a 15 per cent VAT with multiple exemptions was comprehensively rejected by the private sector and the Government's own advisers.

Mr Turnquest, in last week's Budget unveiling, said profligacy by past PLP and FNM administrations meant the Government had little choice but to force a heavy dose of fiscal medicine on the Bahamian people.

Pledging that "the era of fiscal irresponsibility has come to an end", and that the Government can no longer "kick the can down the road", Mr Turnquest portrayed the VAT increase as unavoidable if it is to achieve both the Fiscal Responsibility Bill's consolidation targets and pay off some $360 million in presently unfunded public spending commitments.

The Government's projection of a $400 million revenue increase from the VAT rate rise is central to projected $629 million, or 31.1 per cent, revenue growth for the 2018-2019 fiscal year - a target that many are already sceptical of.

Perhaps anticipating a reduction in economic activity, and business turnover, as a result of the VAT increase, the Government is predicting Business Licence fee income will drop from the $150 million forecast in 2017-2018 to just $101.207 million in the upcoming Budget year - a fall of 32.5 per cent.

Sir Franklyn, meanwhile, said it was ironic that the Bahamas now appeared to be following the same path as the high-tax European states responsible for much of the current pressure facing the country's financial services industry.

"This is precisely why so many people found the Bahamas useful [for tax planning purposes] because their home countries kept doing stuff like this," he said. "Europe has proven that high rates and exemptions create incentives for people to exploit loopholes."

Turning to other perceived anomalies with the 2018-2019 Budget, Sir Franklyn said the increased 'personal travel exemption' and import duty waiver for clothing and footwear retailers highlighted its 'give on one hand, take away with the other' feel.

"Think about this," he told Tribune Business. "You got more exemption to go to Miami, or go online. Why go into the retail business in this country? What impact is that going to have on Business Licence revenues if sales drop?"

Sir Franklyn added that the Budget "has raised a lot of questions" on both the Government's spending and economic growth. "What is this? What is the logic behind this? I do not know a school of thought, any creditable school of thought, where you do something like this and maintain the economic growth in the same Budget," he asked.

"I'm waiting and anxious to see how the Minister explains this in terms of why we should not believe this will not have significant repercussions in terms of the impact on the economy. I'm waiting to see, when he speaks next time, why we should not see this as being really, really bad news.

"On the surface, I do not see how this can possibly be anticipated to trigger economic growth. On the surface these seem to be some seriously wrong policy moves. He [Mr Turnquest] now has to explain why this is a good move. Why go down this road of increasing the rate, increasing expenditure, when all data from credible sources said this was not the right policy move."

The Deputy Prime Minister last week admitted that the Government's annual wage bill has increased by $226 million, or 40 per cent, in the seven fiscal years to 2018-2019, and Sir Franklyn argued that not enough was being done to restrain, or cut, its growth.

Budget figures show the Government attempting to hold public sector wages, described as "personal emoluments", relatively flat year-over-year at $738.476 million for 2018-2019 - a slight decline on the prior year's $741.759 million.

However, this still represents 28 per cent of the Government's total recurrent spending for the next fiscal year. And the salary bill is expected to grow further over the next two years, rising to $757.478 million in 2019-2020 and $790.941 million in 2020-2021.

"There's so much in this Budget that makes me wonder what is going on," Sir Franklyn told Tribune Business. "How could personal emoluments be going up when the whole thrust of what was being said was to drive personal emoluments down long-term.

"How is that? The biggest single discretionary thing the Government can do to reduce expenditure is personal emoluments. How could that be going up? When you cut away the politics, how could that be happening?"

He added: "I am hoping and praying that the next time the Minister speaks he will address issues like this, and give people a degree of confidence the Government does, in fact, have a plan. Otherwise people will think the Government is making things up on the fly, and that could shake up confidence in a lot of ways."

Comments

John 2 years, 9 months ago

The bottom fell out of retail since 2008 and the number of businesses closing down every single day confirms the storm is not over. The cost of carrying inventory is just too high and the turnover too low. And a simple law of Economics states that as prices increases, consumption decreases so not only may more stores close, but government may not realize its targeted revenue.

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jamani2 2 years, 9 months ago

Please not, my fellow Bahamians, and in all due respect to the esteemed gentleman, in all that ranting and raving, there was not one alternative solution offered. Empty rhetoric!

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DDK 2 years, 9 months ago

Quite amazing when both traditional Government opposition and supporting entities are coming forth with similar rhetoric on this proposed lunatic VAT increase.

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ThisIsOurs 2 years, 9 months ago

"Idon't understand this. I am at a loss to understand the logic behind this Budget.*"

You don't understand it because its inexplicable. No one is denying the need for the govt to raise revenue from "somewhere", but KP and Johnsons assumptions based on basic 2+2 math is inexplicable. It's clear they were completely blindsided by the backlash. Another inexplicable detail

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Well_mudda_take_sic 2 years, 9 months ago

You can take Sir Snake at his word here - for decades he has been a tax dodger without equal.

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Bonefishpete 2 years, 9 months ago

Well if the Government had instituted the whole 15 % VAT at the beginning they would've probably be getting maybe a 12 % return by now. Got to get while the gettings good. So says the Ponzi Man.

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BahamaPundit 2 years, 9 months ago

Trust is key. Raise taxes as much as you like, but the people don't trust you anymore, so they will start to rebel. Your tax collections will start to fall, and you will end up with sacks of coal.

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BahamaPundit 2 years, 9 months ago

We were told 7.5% VAT would right the sinking ship.

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BahamaPundit 2 years, 9 months ago

Just because you're black, doesn't mean I have to listen to you. I listen to people who make sound economic sense and have a track record of success, regardless of race. Go carry your racist mind. If you suck, you suck, and I will tell you as much. Michelangelo would not have painted the Sistine Chapel, if he knew that everyone was a genius. If you ain't a genius, no matter if you black or white, step the fuck aside for progress.

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sheeprunner12 2 years, 9 months ago

Pundit now has a filthy mouth!!!!! ......... Anyhoo, gatta collect the 12% VAT, or go with outstretched hands to the white man (foreign bankers) ........... Watsayu???.

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BahamaPundit 2 years, 9 months ago

Yes I do. I paid thousands of dollars extra in VAT at 7.5% and now they telling me it didn't do a damned thing. I'm pissed off!!!!

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Well_mudda_take_sic 2 years, 9 months ago

Repost: Is the 'Chicken Little scare tactic' the best the dimwitted Doc and incompetent Turnquest can come up to justify the disastrous decision they made to increase VAT to 12%. These two bozos are now trying to play the same 'scare card' that Christie played when he introduced VAT at 7.5%. I remember well 'Chicken Little' Christie singing the sky is falling to scare the hell out of us into accepting VAT. And no sooner was VAT introduced then Christie turned around and said: "To hell with reducing annual deficits and the national debt, we need to garner more political support for the PLP by growing the size of the public services sector so that it can serve as a social safety net that will hopefully buy more votes for the PLP." And so Christie effectively flushed our VAT dollars down the toilet rather than introduce much needed austerity measures to reduce the out-of-control costs of our bloated and largely non-productive civil work force. Now we see the dimwitted Doc and incompetent Turnquest trying to pull the same 'Chicken Little Christie' scare tactic on us in a feeble effort to try justify the Minns-led government's foolish proposal to jack up the VAT rate to 12% without having done appropriate modeling and sensitivity analyses that would almost certainly reveal the foolishness of their decision. The high VAT rate and exemptions proposed will result in serious complexities and tax collection leakages of one kind or another, including non-compliance by aggrieved taxpayers who will perceive the additional VAT to be most unfair. And then there is the very real risk that our still very sluggish economy will be thrown into a great recession as a result of the additional consumer dollars that will be sucked out of the economy. Such a recession combined with the exemption and non-compliance leakages will in turn result in the government receiving much less than the $400 million they hope to receive from the 4.5% hike in VAT to 12%. But perhaps most important of all, we now all know with great certainty that Minnis and Turnquest, like Christie, will take the politically easy road which means our additional VAT tax dollars will be used to grow the size of the public services sector even more in a most foolish effort on their part to both raise $400 million and 'buy' as much voter support as possible. We know this because Minnis and Turnquest have steadfastly refused to announce a detailed austerity program aimed at significantly reducing the costs of our bloated government and civil work force. WE MUST NOT ACCEPT THIS MOST FOOLISH INCREASE IN VAT NO MATTER HOW MUCH CHICKEN LITTLE SQUAWKING AND CRYING MINNIS AND TURNQUEST WILL DO. BOTTOM LINE: THESE TWO BOZOS ARE NOW TRYING TO PLAY THE 'SCARE CARD' TODAY IN MUCH THE SAME WAY THE 'RACE CARD' WAS USED TO MANIPULATE US FOR SO MANY YEARS.

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TalRussell 2 years, 9 months ago

Comrade KP can make until my deceased rooster Big Red awakes from he backyard grave - all the well-reasoned 12% VAT arguments he wants, the 91,409 voting 10th May 2017 to send 35 red shirts candidates to the House of Assembly - are still left knowing they were too easily manipulated by the 35 Man's and woman's - now the governing sitting House occupants. R.I.P my Dear Comrade Big Red.... And had you died at PMH, I would've been made by KP and Dr, Duane to had to have paid $700 claim ya remains.

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bogart 2 years, 9 months ago

IN ONE OF THE WWEALTHIEST....RICHEST..MOST AFFLUENTEST.....BAHAMIAN MPs .?MEMBERS OF PARLIAMENT EVER ELECTED.....AFFLUENTEST BUSINESSMEN...HIGGHEST SALARIES EARNING PROFFESSIONALS......cept fer dat one youngster MP from Bain Town wjo just finishing school.....it would strongly appear that dey does not have the faintest idea of what the 75,000 to 100,000 thousand Bahamian pore is going through........

People laid off....dey actually tek bread outta ya mout...the firstest set of VAT done tek outta the pore people pocket whatever little money they had...now the RICHEST SET OF MPs PARLIAMENTARIANS now done allreddy calculate how much more these same now poorer 7.5 % VAT people gan pay...an get dis ...after the crying even from some of the just ontop poorer who ..the PARLIAMENTARIANS...get dis asking fer other solutions....it already done jump outta dere mouts how dey think bout the pore. Mudda sic.

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TheMadHatter 2 years, 9 months ago

Sir Franklyn is obviously not aware that duty free clothing and shoes have been sold in the shanty town unlicensed "stores" for years. The new budget simply levels the playing field for Bahamian retailers. We don't have to smuggle now. We can offer competive prices now to compete with both Miami & Port au Prince.

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