0

Leading banker hits out over VAT ‘maze’

photo

Gowon Bowe

• Bahamas ‘better served keeping it simple’

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Government “created a maze” for the Bahamian private sector and consumers when it abandoned the low-rate, broad base VAT model, a prominent banker is arguing.

Gowon Bowe, who headed the Chamber of Commerce’s Coalition for Responsible Taxation when VAT was first introduced, told Tribune Business he “remains critical” of the Minnis administration’s decision to hike the rate to 12 percent and introduce multiple exemptions.

Arguing that “society would be better served by keeping it simple”, he added that one negative consequence from this move was that food stores were forced to raise the prices of non-exempt items to compensate for the VAT they are unable to recover on consumer sales.

“I don’t think the Ministry of Finance has demonstrated to this date that having exemptions at a higher rate is more efficient and effective than the original system we had in place,” Mr Bowe, who is Fidelity Bank (Bahamas) chief executive, told this newspaper.

“There’s now Indian giving; we give you exemptions, but increase the rate to compensate for that. The study by Oxford Economics demonstrated it was fare more efficient to have a low rate with no exemptions, and have targeted initiatives to help those with lower incomes through social assistance.

“The high net worth individuals in this country eat breadbasket items like the low income earners, but high net worth individuals also get exemptions and don’t need it. I was critical of the Government’s decision to increase the rate to the level they did with exemptions, and I remain critical of it,” he continued.

“The complexities in the system have not benefited us, and have only created doubt over what’s included and not included [as a VAT ‘exempt’ item]. It created a maze that we have to navigate, as opposed to a straight line we originally had. I believe society would be better served by keeping the tax as simple as possible and the rate as low as possible.

“If we can keep the base as broad as can be we will not be giving benefits to those that do not need it in the first place.” VAT ‘exempt’ goods and services do not include the 12 percent levy in the price to the final consumer.

However, businesses that sell such products still have to pay the 12 percent VAT on the input costs associated with them, yet are prevented from recovering or netting this off in the absence of ‘output’. VAT.

Therefore, when the Minnis administration introduced multiple exemptions in the 2018-2019 Budget, food stores saw the proportion of rent, utilities and other expenses where they were unable to recover input VAT increase materially. This left them with little choice to increase food prices, further hurting lower income Bahamians in particular.

“We’ve made it cheaper for those with lower income to afford breadbasket items,” Mr Bowe added, “but have likely restricted them to only breadbasket items because we’ve made non-breadbasket items more expensive by increasing the VAT rate.

“Putting food on the table is very important, but so is the occasional treat of chocolate and ice cream. If we start pricing basic luxury items out of their reach, have we done the greater good? My personal view is we haven’t. With a broader base, you make the cost of living more evenly distributed, and use the excess cash collected to redistribute and support those in need.”

The Minnis administration argued that the VAT rate hike was necessary to pay-off some $360m in past due government arrears for which no funding had been set aside to meet. This sum was supposed to be paid off in three years, with ex-deputy prime minister, K Peter Turnquest, pledging that the Government would seek $100m in import duty cuts when this objective was achieved.

Those cuts will not now occur due to the debt blow-out produced by the combination of Hurricane Dorian and COVID-19. And the Minnis administration’s decision to increase the VAT rate, as well as implement numerous exemptions, resulted in The Bahamas moving away from the ‘low rate, broad-based’ tax model it had been praised for introducing.

The Bahamas had been warned against doing this by former Barbadian prime minister Owen Arthur, who on a visit to Nassau revealed that the southern Caribbean nation, by giving into industry and special interest requests for ‘exemptions’, had been forced to raise its own VAT ‘rate’ into the high double digits.

Exempting products and services from VAT has knock-on consequences for both businesses and consumers. Companies are unable to recover the VAT they pay on their ‘inputs’ when products they sell are exempt, meaning that this merely increases their costs.

A broadening of VAT exemptions also prompts businesses to increase prices on non-exempt items to compensate for their higher costs, thereby hurting the consumer who was the very person that the Minnis administration wanted to help. And the Government also has to ‘make up’ for the VAT revenue foregone elsewhere in its tax structure.

Comments

FreeUs242 1 year, 7 months ago

This country is in chaos right now and I don't think either parties can fix us due to the abusive political system that has been in place for years. It will never be a chance for a new party to be voted in power because most of the Bahamians will continue to play the blame game that these parties have created.

The only time you see most of these politicians out and about is close to election. The opportunities aren't permanent and not really benefitting our country for long term success. Most of these projects are hiden to the public and will never be known.

The main point is that the government don't give 2 cents about the majority of Bahamians, only their families, friends and lovers get a fair share of great opportunities. They don't want to see you succeed above them so, they will continue to have you below them. Think about it Bahamas...

0

rodentos 1 year, 7 months ago

you really do not believe that complex tax rates feed anyone except government officials...

60% duty on furnitures but 20% on printers, then $20 levy on washing machines, it is broken man... the more § the more confusion and more bureaucrats to oversee and "control" the confusion.

There should be just one rate for all. One duty rate, and one VAT rate. No one needs something more complex.

0

tribanon 1 year, 7 months ago

And can you just begin to imagine the chaos and unfairness that would exist under an income tax system, with our corrupt politicians kowtowing to the pressures of the wealthy special interest groups for all kinds of exemptions and deductions that would lower their effective income tax rates and result in higher and higher tax rates for the rest of us?

We are a nation in urgent need of government reform, not tax reform. Our entire civil service needs to be revamped in a way that greatly minimizes the potential for waste, fraud and corruption at all levels, rewards performance rather than seniority, and eliminates abuses based on political affiliation.

1

tribanon 1 year, 7 months ago

Mr. Bowe is absolutely right about the need for our nation to revert back to the simplest and fairest VAT system possible, as was originally envisioned and recommended by reputable experts at the time VAT was introduced.

The unintended consequences of politically motivated VAT exemptions have imposed a most unfair and unbearable financial burden on so many of the less fortunate in our society. Only a heartless monster like Minnis would allow this type of unfairness to continue, with many Bahamians only able to afford the most unhealthy foods if they can afford any food at all.

0

BONEFISH 1 year, 7 months ago

What Gowon Bowe has stated in this article is true.

Juan McCartney on his talk show the Revolution Monday ,past explained how for the last three years, Marlon Johnson and Peter Turnquest refuse to disclose what economic models were prepared the budget when the rate was raised.. Basically there was no economic models and forecasting used. , Marlon Johnson has not answered those questions which were asked by a former senior FNM cabinet minister.

The late Sir William Allen and Frank Watson in separate interviews predicted what was going to happen. The blame for this situation lies squarely at the feet of Dr.Minnis. Like the son of a former senior FNM cabinet minister said, he does not understand how the vat tax system works.

0

sheeprunner12 1 year, 7 months ago

The Bahamian tax system NEEDS a complete overhaul .......... This is the ideal time to do it as we try to rebound from Covid & Dorian. Whether the FNM Government will do so, depends on the political climate leading up to the 2022 Election ........ and beyond.

CONSIDER THIS:

  1. What present taxes should we keep? ... fuel, vehicle, stamp, departure, excise, customs, real property, NIB/Health, business, VAT12 etc
  2. What present taxes should we get rid of totally?
  3. What present taxes should we increase rates?
  4. What present taxes should we decrease rates?
  5. What NEW taxes should we consider in order to ENHANCE social equity?
  6. How can the post-2021 tax regime be BETTER collected by Govt or private sector?
  7. How can ALL Bahamians be encouraged to pay their taxes more efficiently/timely?
  8. How can the Govt reduce the amount of non-receivables from its taxation system?
  9. How can the Govt ensure that Bahamians are compliant with taxes before benefiting from any Govt incentives?
  10. How can younger Bahamians (U50) be educated to engage in greater awareness of the importance of paying taxes (compared to their forebears)?
0

tribanon 1 year, 7 months ago

No! What we really need formost and most urgently is comprehensive reform of our failed civil service system. Only after that has been accomplished would it be meaningful to introduce tax reform that replaces our current unfair regressive system of taxation and fees.

0

Sign in to comment