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‘Total devastation’ if VAT was put at 15%

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Rupert Roberts

• Roberts: ‘Now not time to raise anything’

• Fears 10-15% food price hikes in January

• Attorney: ‘Only raise VAT if lower duties’

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Super Value’s principal yesterday said increasing the VAT rate to 15 percent would have inflicted “total devastation on the economy” with food prices set to rise 10-15 percent in the New Year.

Rupert Roberts, speaking to Tribune Business after it was revealed that the International Monetary Fund (IMF) suggested the option of raising VAT to sustain the “multiple exemptions model”, said “now is not the time to increase anything” given the inflationary pressures facing The Bahamas due to oil price rises and COVID-related supply chain disruption.

Revealing that the supermarket chain’s sales have been “negative against last year” for the whole of 2021, and are currently off 5 percent, he added that while forward buying will enable it to hold the line on food prices through Christmas early 2022 may be a different matter.

Dr Hubert Minnis, the former prime minister, on Monday denied that his administration would have adopted the IMF’s 15 percent option if re-elected, and well-placed Tribune Business sources yesterday confirmed that the Fund’s report was never presented to him or the full Cabinet for consideration.

However, its disclosure by the current Prime Minister provides a glimpse of the potential austerity measures that may soon come, in the form of new and/or increased taxes and spending cuts, if The Bahamas is to drag itself out of its debt crisis and hit the Davis administration’s 25 percent revenue-to-GDP target by the time it leaves office in 2026.

“The market is devastated now. That would be totally devastating on the economy and the poor,” Mr Roberts said of any increase from the present 12 percent rate. “They’d not be able to stand that. On top of the 15 percent inflation ahead of us, that would be strangling the working man, the grassroots, the poor.

“They might need to fund the Budget, but that wouldn’t be the place. After what we’ve been through, Hurricane Dorian and the pandemic, I cannot see them acting on that. This wouldn’t be the time to go increasing anything; VAT or anything else.”

A 15 percent VAT rate, with multiple exemptions and zero ratings, was ironically the model initially adopted by the Christie administration in early 2013 when it rolled the new tax out. However, the private sector - backed by research and empirical data - ultimately persuaded the then-government to go with a low-rate, broad-based structure when VAT was implemented in 2015.

There is no evidence to suggest the Minnis administration, if re-elected, would have accepted the IMF’s advice to go with a 15 percent VAT - especially since it would likely have choked-off the post-COVID recovery by depressing consumer spending while also further eroding fragile business and consumer confidence. There is nothing compelling acceptance of IMF advice.

Philip Davis QC, the newly-elected prime minister, on Monday sought to suggest the IMF’s advice was evidence of the former administration’s post-election tax raising plans - as alleged by the Progressive Liberal Party (PLP) when in Opposition. However, he later appeared to back track, agreeing there was nothing that indicated Dr Minnis would adopt the 15 percent option.

The current government has instead elected to cut the VAT rate to 10 percent, and go back to the broad-based model with few exemptions and zero ratings, in the belief this will boost revenue compliance and be easier to administer, thus making the Government’s main revenue source more efficient and effective.

Meanwhile, a well-placed source, speaking on condition of anonymity, yesterday backed Dr Minnis’ assertion that there were no plans to raise VAT to 15 percent. They disclosed that the IMF report was received by the Ministry of Finance around two weeks before the election, and never presented to - or discussed by - the then-prime minister and Cabinet.

The source added that the Government had requested IMF assistance as part of its May Budget pledge to conduct a comprehensive study on the whole Bahamian tax structure, and potential reforms, which would lead to the release of a so-called “White Paper” for consultation with the Bahamian people.

The IMF was asked to look at The Bahamas’ various tax options, and the source said: “They completed a report in early September. Cabinet didn’t see it, and the then-prime minister didn’t see it. It didn’t feature in any consideration of the Government at the time. The Government didn’t have a chance to contemplate doing anything with it.”

This newspaper was told that Kwasi Thompson, then-minister of state for finance, had received a copy of the IMF report but this could not be confirmed as he did not return this newspaper’s calls and messages before press time last night.

Mr Roberts, meanwhile, said consumer spending remained depressed due to continued high unemployment and reduced incomes resulting from the pandemic. “Our sales are negative against last year for all periods, down close to 5 percent,” he told Tribune Business. “We’ve been running that way the whole year.

“We’ve been trying to stock up. We’ve been working on this throughout the pandemic, and when the food chain started to weaken we tried to stock up up to six months’ supply. We got up to three months’ inventory and found the warehouse could not hold it. It hasn’t moved too much beyond a month’s supply.

“Some of the merchandise we bought, cooking oil went up 60 percent. I told them to hold until we say ‘ship it’. Mackerel went up 40 percent. If ten items go up 40-50 percent, that will take the whole mass of supermarket items up 3-4 percent.”

Mr Roberts said Super Value’s forward buying meant it will be able to “hold current prices until after Christmas”, but he forecast increases of between 10-15 percent come January when new stock is required.

“Price increases from inflation are nothing to do with us,” he added. “It’s rising costs worldwide and freight costs. It’s really anybody’s guess. I was talking to a major supplier: Do we stop buying or do we go out and rent extra warehouse space to protect the country’s food supply for the next six months? Tough times never last, but tough people do.”

Carey Leonard, the Callenders & Company attorney, told Tribune Business that increasing the VAT rate to 15 percent would be more acceptable if it was accompanied by Customs duties being slashed by a similar proportion.

“You could go up on VAT if you come down on duty,” he argued. “They’d be better off bringing down duty. You cannot go up on VAT and leave duty where it is. If you want to go to 15 percent, go to 15 percent, but drop duty on what you bring in.”

As to the economic impact of a 15 percent VAT, Mr Leonard added: “It’s really difficult to say. To say what it would have done all depends on how they would have executed it. I don’t think it would have been very beneficial, and it may well have impacted on the economy in a very negative way.

“I must say the cut to 10 percent all sounds good, but if you put 10 percent on basic foods and medicines I don’t see how that benefits the little man. I just think they have to be careful. It shouldn’t be on medicine.”

Comments

FrustratedBusinessman 6 months, 3 weeks ago

Sadly, I don't think that the rampant inflation is going to slow down any time soon. Who would have thought that printing loads of money off would result in skyrocketing inflation? Ah well, a load of Americans and Bahamians wanted to ride with Biden, so they are just getting what they voted (or wanted to vote) for.

As Mr. Roberts pointed out, it is all out of our control. A good time as any to get into backyard farming as any, if you can.

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Emilio26 6 months, 3 weeks ago

While I understand your view of backyard farming however there aren't many bahamians that have their own home where they can plant stuff in their own backyard and further more even the ones that have their own backyard can't farm on a large scale because they're property isn't that big.

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ohdrap4 6 months, 3 weeks ago

He means for subsistence. You do carrots , your neighbour does sweet peppers and you barter.

However, supplies like soil and containers are expensive, and it is time consuming. Very time consuming.

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