By NEIL HARTNELL
Tribune Business Editor
The government was yesterday urged to “quantify” its VAT shortfall, a top accountant hailing its admission of a near $200m total revenue undershoot as “very bold and courageous”.
Gowon Bowe, the Bahamas Institute of Chartered Accountants (BICA) president, told Tribune Business that the government needed to match what it had done for the gaming taxes and Revenue Enhancement Unit collections by providing figures to show how much VAT is likely to come in under 2018-2019 budget projections.
KP Turnquest, the deputy prime minister, in unveiling the mid-year budget estimated that web shop tax collections would come in some $18m below projections for the full year, while the Revenue Enhancement Unit’s delayed creation had placed $80m worth of revenues in jeopardy.
No such statistics had been forthcoming for the VAT undershoot, though, and Mr Bowe also called on the government to clarify whether the likely missed target had resulted from businesses and consumers cutting back on spending in response to the rate hike to 12 percent.
Both Mr Turnquest and Marlon Johnson, the Ministry of Finance’s acting financial secretary, have consistently said VAT revenues are behind projections for the 2018-2019 fiscal year because of the transition periods granted to the hotel and construction industries so that existing reservations and contracts could be honoured at the lower 7.5 percent rate.
They believe the fill impact of the budget reforms, including the VAT rate increase and Revenue Enhancement Unit’s establishment, will now be felt in the upcoming 2019-2020 fiscal year - meaning that the effects are delayed rather than they will not happen.
“I do commend them for saying they will miss the target,” Mr Bowe told Tribune Business. “I’d like to see strong rationalisation for why they’re missing the target.
“We can appreciate we have slower VAT revenues. We should have the underlying root causes: Is it because they’ve seen a reduction in spending or is it a timing issue; the contractual relationships and timing for the hotel and construction industries.
“It’s not to cast doubt on that; it’s to quantify the impact. We did it for gaming and the Revenue Enhancement Unit; we should be doing the same for thing for the principal driver, VAT.”
The government has forecast it will narrowly beat this year’s fiscal deficit target despite a $185m revenue shortfall caused by VAT, gaming and enforcement underperformance.
Mr Turnquest, in unveiling the 2018-2019 mid-year budget said the Minnis administration was on track to limit the full-year deficit to around $230m - some $5-$10m less than the “red ink” target set last May.
He said the Government will be able to achieve this, and offset its revenue gap, through “significant spending restraint” projected to slash recurrent expenditure by five percent compared to initial forecasts.
This, based on Tribune Business’s calculations, amounts to a $130m cut to projections that it would spend some $2.589bn on its recurrent or fixed-costs - typically civil service salaries, benefits and rents - this fiscal year.
Forecasts that revenue will fall 7 percent short of Budget predictions amounts to a $185.43m undershoot of the initial $2.649bn target, although Mr Turnquest implied that the VAT rate hike and other tax measures had still produced their desired effect because full-year recurrent revenues will be more than $400m ahead of 2017-2018.
The deputy prime minister did not provide a figure for the projected VAT shortfall, although based on the total undershoot - and the losses relating to web shops and the Revenue Enhancement Unit - this is likely to be around $90m or half of the $185m.
“It was a very courageous and very professional disclosure on his part,” Mr Bowe said of Mr Turnquest’s revenue shortfall admission, especially given the magnitude of the undershoot. “It was a very courageous move to say you will miss by near $200m; a very honest step when you have international and domestic actors looking at it.
“It sets the tone for understanding we have to tighten our belts on expenditure but, when you do that it sets the bar higher, so you want to know the assumptions or estimates that didn’t materialise so you don’t repeat the same thing in the next budget.
“We don’t get details on how they formulate the assumptions and estimates, and by doing that it sets us up to repeat the same mistakes in the following year’s Budget.”
The BICA president said the deputy prime minister will now have to “show his fortitude in holding that expenditure line” when it was not easy to control. Set against this objective, Mr Bowe said the Government needed to ensure it targeted the “right areas, value for money” and “be sure you’re getting the biggest bang for your bucK” from the planned capital spending ramp-up.
He added that The Bahamas needed to develop its own economic growth statistics rather than rely on the likes of the International Monetary Fund (IMF) and Inter-American Development Bank (IDB), given that this was the main determinant on which government revenues are forecast.
“By framing our growth we have to tell them what justifies it and live up to it,” Mr Bowe said, “as we know all the drivers.” He added that economic growth, both domestic and international, should not be the determining factor on whether the Government produces a budget deficit or surplus but, rather, how it adjusts spending and revenues to achieve this objective.