By NEIL HARTNELL
Tribune Business Editor
The government was yesterday said to be “feeling pretty good” about VAT’s performance despite collecting just 55.6 percent of the 2018-2019 full-year forecast during the first nine months.
KP Turnquest, deputy prime minister, told Tribune Business that its major revenue-raising mechanism had performed “in line with projections” during the second and third quarters despite the government’s data giving every indication that full-year targets will not be met.
But, rejecting arguments that the VAT rate hike to 12 percent will not achieve the government’s objectives, Mr Turnquest said the full impact was delayed rather than missed. Pointing to the transition period granted to the hotel and construction industries, as well as the consumer “adjustment” to the increase, he argued that such a lag was “not unexpected”.
The government’s nine-month fiscal “snapshot” and budgetary performance report, released yesterday, showed that VAT revenues for the period to end-March were up year-over-year by almost $100m - a 20.2 percent increase.
The rise, from $490m to $589m, is well short of matching the 60 percent hike in the VAT rate - something that is likely to be seized upon by the government’s political opponents. They have consistently argued that the magnitude of the rate increase will not be matched by a corresponding surge in VAT revenues.
While year-to-date VAT revenues are well short of the $1.062bn full-year projection with just three months of the 2018-2019 fiscal period left, the Ministry of Finance’s top official yesterday said the tax’s year-over-year performance was not a true like-for-like comparison.
Marlon Johnson, acting financial secretary, told Tribune Business that VAT was no longer levied on real estate sales as it had been prior to the 2018-2019 budget, when it enjoyed a 7.5 percent/2.5 percent split with Stamp Tax.
As a result, this year’s VAT collection is up against a tough year-before comparison when figures included revenues generated by real estate sales. Mr Johnson said this impact could be gauged by the more than-doubling of Stamp Tax revenues, which had increased by more than 100 percent year-over-year to $169m, as a result of the Government eliminating VAT on real estate sales and reverting to 10 percent Stamp Duty.
“We took real estate off VAT and it was added to Stamp Tax,” he explained. “You’ll see a bump up in Stamp Tax revenues that were otherwise booked as VAT.” Mr Johnson said the concessions granted to the construction and hotel industries, allowing them to levy VAT at the old 7.5 percent rate on pre-booked business, and the fact quarterly filings for the 2018 second quarter would also have been based on this rate, provided further explanations for VAT’s seeming under-performance.
“Add all that up, and it translates into a pretty good position, especially given the concessions made to the construction and hotel industry which are pretty significant economic drivers,” he added. The Government has already projected that total revenues will likely undershoot the full-year target by $185m due in part to the VAT transition.
Still, VAT was shown to be the poorest-performing revenue source when nine-month collections were measured against full-year targets. Just 55.6 percent of the $1.062bn forecast had been received, whereas the likes of real property tax, Business Licence and trade taxes had already produced 70.9 percent, 81.6 percent and 63 percent of their full-year projections respectively by end-March.
Mr Turnquest, though, voiced optimism that the full impact from the VAT rate hike will be felt in the upcoming 2019-2020 fiscal year now that the transition period afforded to the hotel and construction industry has long ended.
Confirming that this transition had not been factored into the VAT projections, he told Tribune Business: “Hopefully we will see a sustainable level of productivity from the VAT system, and maybe even a gain.
“We’ve consistently said we made some concessions at the beginning of the year that affected the overall budget projections, and there’s a natural tendency for some adjustment as with any new tax that’s introduced, so it’s not unexpected.
“The positives are that we are above where we were last year,” Mr Turnquest continued, “and the trends for the second and third quarters have been positive and trending in line with our projections. That gives us the confidence that our projections are not inaccurate.
“As with any change there’s always a natural period of adjustment as consumers come to grips with it, but overall we’re feeling pretty good with where VAT is.”
The Government’s nine-month budgetary report, breaking down the revenue performance, said: “Reflecting two quarterly filings at the 12 percent rate, Value-Added Tax (VAT) receipts posted a gain of $98.9m to $588.9m.
“Collections represented approximately 55.6 percent of the budget, with the initial quarter’s performance moderated by the Government’s accommodation to hotels and resorts and development projects to honour business booked/secured prior to September 30, 2018, at the old rate.”
As for Stamp Duty, the report added: “The buoyancy in stamp taxes on financial and realty transactions was maintained throughout the year-to-date performance, with an approximate two-fold hike in the yield to $161.6m from $80.6m a year ago.
“At 112.5 percent of the budget, the outcome was supported by the increase in stamp duties on realty transactions in excess of $100,000 to 10 percent, effective July 1, 2018, following the corresponding removal of VAT from all realty deals. Stamp taxes on banking transactions, at $54m, represented a gain of $8.7m in receipts.”
The VAT rate hike and corresponding Stamp Duty adjustment were the Government’s key revenue increase drivers for the year-to-date, with all other major revenue streams largely flat against the prior year.
Mr Turnquest, meanwhile, reiterated his previous calls for the web shops to pay all taxes due and owing under the mid-February settlement with the Government. While 2018-2019’s gaming taxes were only $5.1m below the sum collected for the first nine months of the prior fiscal year, he added that “every dollar matters”.
“We just need to ensure we collect the taxes due to the Government,” Mr Turnquest told Tribune Business. “Nobody wants to pay taxes, but we all have our part to play in the provision of services to the Bahamian people and we have to meet our commitments.”
The Government’s report added: “Gaming tax receipts, at $22.5m, were $5.1m below the corresponding period and exclude the impact of the recent agreement reached with the gaming houses that will recoup a portion of the new fees anticipated in the first half of the year. Consequently, collections to date amounted to only 32.1 percent of the $70m budget target.”
Turning to other revenue sources, it continued: “Revenue collections from licences to conduct special business activity posted a gain of $24.6m (34.9 percent) to $95.1m. While consistent with trend collections, the dominant business licence component contributed a strengthened $32.1m (51.7 percent) more in receipts.”
As for the overall revenue picture after the first nine months, the Government’s report said: “Revenue receipts through March... amounted to an estimated $1.689bn, an increase of $218.7 million (14.9 percent) over the corresponding period in fiscal year 2017-2018, and represented nearly 64 percent of the fiscal year target.
“Tax receipts improved by $198m to $1.522bn (62.6 percent of the budget), while non-tax revenue surpassed the three-quarter budget mark (76.5 percent) with a gain of $20.7m to $167.3m.
“Supported by recent fee increases, revenue from immigration fees were higher by $20.9m (44 percent) and equated to 89.3 percent of the budget target. Fines, penalties and forfeits provided receipts of $3.9m relative to $1.5m last year (mainly emanating from judicial-related activities).”