EDITOR, The Tribune.
By its nature, a Value Added Tax affects the whole domestic eco-system of an economy. It applies to everything. That is how it is intended and that is its strength. As such, the application of “exemptions” is meaningless, because everywhere the recipient of the exemption turns, he still has to pay VAT in order to use the money he has “saved” via the exemption.
To put it in simple terms, take the poor individual who supposedly benefits from zero VAT on corned beef. What happens to the 24 cents he saves on a can of corned beef for breakfast? Does he keep it in his pocket or a piggy bank forever? If so, it has no utility. Besides, in an environment where even middle-class Bahamians cannot afford to save money, it is very unlikely.
In fact, he spends it. And whether he spends it on a chicken snack for lunch, on clothes for his family, on toiletries, car parts or on a numbers ticket, he then pays VAT. The same applies to VAT “holidays”. Unless the holiday lasts forever and covers literally everything needed to sustain life, then it is meaningless, since any money saved attracts VAT when spent.
VAT exemptions are futile in helping the poor because the overall effect of VAT is to make the general cost-of-living 12 percent higher – meaning the money “saved” isn’t saved at all. It is merely deferred for later payment. Moreover, if it did work, it would result in lower revenue yields, prompting government to increase the rate of VAT on everything else.
Of course, every economist knows this, and most informed individuals can figure it out. So why do some politicians continue to sell VAT holidays or exemptions as a pro-poor measure? The short answer is that they are either extremely ignorant or they think that you are.
The long, and more troubling, answer is that they are scrambling for a cheap and easy distraction from larger issues that they have no intention of addressing. In The Bahamas, this means diverting public attention away from government’s fundamental commitment to a tax regime that makes poor people pay the bill for tax breaks for rich people. Lipstick on a hog, if you will.
For the record, in most countries, taxes on consumption (which everyone agrees disproportionately affect the poor) make up around 30 percent of revenues, while taxes on income and property (which affect wealthier people) make up around 70 percent of revenues.
In the Bahamas, merciless taxes on consumption make up more than 70 percent of revenues, while taxes on the highest-end luxury properties get concessions (a $60,000 ‘cap’, in fact) and income taxes don’t exist, even for local corporations that rake in hundreds of millions of dollars exclusively from the pockets of over-taxed local consumers. It is the most regressive tax regime of any independent country in the Americas – and government repeatedly confirms it has no plans to change it.
To now try to deflect from this issue with cheap gimmicks that will have zero net effect on anyone (least of all the poor) is to insult the intelligence of every Bahamian.
ANDREW ALLEN
Nassau,
June 5. 2021.
Comments
C2B 2 years, 10 months ago
Let's review your simple explanation in paragraph 2 of your letter. If i save 24 cents in VAT on the corned beef and spend it elsewhere, I will pay 12% of the 24 cents in VAT on my additional purchase. That's 2.6 cents of the 24. How is that paying all my savings in VAT? The VAT "holidays" do save money. Also, consumption taxes are 70% of revenue because there is no income tax, not because the VAT is higher than elsewhere. The "solution" to the outsize percentage you indicate is to install an income tax, thus bringing the ratio in to alignment with other Nations.
momoyama 2 years, 10 months ago
My whole point is that, instead of rebalancing the utterly regressive tax burden in this country (by at least bringing it into line with international norms) government is engaged in peripheral gimmicks. If they want to help the poor, remove or drastically reduce VAT and make up the difference by taxing the income of wealthier residents - like they do everywhere else on earth.
And yes, consumption taxes ARE higher than elsewhere. Besides, there is no need for them to be as high as they are here (no matter what they are in other places) if we just applied the same principle of fairness and progressiveness as is applied elsewhere.
Believe it or not, apart from our stupid leaders, we are actually relatively blessed and things could be easier here on the consumer and the country/ economy at large if we did not have people with inferiority complexes making policy.
Just out of curiosity, what would your "solution" be?
momoyama 2 years, 10 months ago
WOW dude...are you serious?????
A VAT is a universal tax. It applies every time you buy anything. That means you cannot use money without incurring the charge. In other words, it is a charge on the use of money. So every penny that you save, you pay VAT on. Your logic (that you have only paid 2.6%) only applies if corned beef is the only thing that you buy. If not, then you (like everyone else) are incurring an average of 12 percent on the use of your money - all of it. If somehow, you change your whole pattern of consumption and live only on corned beef (with the obvious health effects) then revenues would fall - obviating the efficacy of the whole VAT project, unless you raise the rate. In reality, however, there is no such effect and the exemption achieves nothing apart from optics.
On the issue of income tax vs consumption tax, my point is that consumption taxes are REGRESSIVE and hit the poor hardest, while income taxes are progressive and fairer and FAR MORE conducive to economic growth, since they do not dampen consumption in the same way.
Yes, more than 70% of our revenues are on consumption (in fact far more than that) because we run our country on a pittance by any international standards (spending is 17 percent of GDP) in order to spare FOCOL, COLINA, Arawak Homes, Commonwealth Brewery, J. S. Johnson and other filthy rich corporations that make ALL of their money on Bahamian consumers. But unlike the whole world, we tax only the consumers, not the wealth that it produces and concentrates in the hands of the few.
OF COURSE the "solution" is an income tax on these hogs! Anywhere else on the planet you would be laughed at even to question that. It is also higher and better collected taxes on the foreigner property owners that we have, since that moron Ingraham, been selling our country to with abandon. People can't believe their luck to have found a country where the government is so stupid that it does not seize and sell their homes (and private islands) for having millions of dollars of outstanding Real Property Tax. All our government seems to want is to find more ways of taxing Bahamians, preferably poor and middle class ones. Then they pretend like we have a debt problem, when the whole world can see that we have a tax-break-on-the-rich problem.
DonAnthony 2 years, 10 months ago
Remove commonwealth brewery from your list of filthy rich corporations, they have not paid a dividend in 4 years. Most Bahamian companies would welcome a modest corporate tax that is based on profits rather than the unfair current tax based on gross revenues.
momoyama 2 years, 10 months ago
http://www.tribune242.com/news/2016/a...">FNM’s VAT plan ‘totally misguided’
Here is what D'aguilar had to say about the idiotic idea of VAT exemptions, before joining these clowns in this circus.
ohdrap4 2 years, 10 months ago
He buys a package of grape koolaid to wash it down with.
Dawes 2 years, 10 months ago
What happens if he buys another VAT free item? Then he has saved even more? The basis of this argument is silly. Yes taxes can be raised on the highest earners and companies, but remember on companies that is always paid for by the customer as they will increase prices to make up for it. On the highest earners they will adjust their spending. The real question is how much tax should we pay for such pitiful service. Scandinavian countries don't mind paying such high taxes because they get great health care, schools, roads, public services etc. Over here we have numerous people talk about raising taxes without addressing how abysmal our services are. When NHI was first discussed the experts said for it to work health care must be fixed first. Of course doing that wasn't good politically so we went ahead with NHI with a collapsing health service, meaning we won't get the correct benefits from NHI.
Proguing 2 years, 10 months ago
Mr. Allen from his ivory tower does not understand that many Bahamians don’t have sufficient resources to purchase all the basic food items they need. To argue that a reduction of prices by way of tax exemption does not help the poor is ludicrous.
Many other countries apply the tax exemptions like South Africa:
https://www.businesslive.co.za/bd/eco...">https://www.businesslive.co.za/bd/eco...
Proguing 2 years, 10 months ago
And again Mr. Allen from his Ivory tower thinks that the super rich pay a lot of taxes in other countries which is totally false as revealed by the IRS files: "In 2007, Jeff Bezos, then a multibillionaire and now the world’s richest man, did not pay a penny in federal income taxes. He achieved the feat again in 2011. In 2018, Tesla founder Elon Musk, the second-richest person in the world, also paid no federal income taxes.
Michael Bloomberg managed to do the same in recent years. Billionaire investor Carl Icahn did it twice. George Soros paid no federal income tax three years in a row."
"No one among the 25 wealthiest avoided as much tax as Buffett, the grandfatherly centibillionaire. That’s perhaps surprising, given his public stance as an advocate of higher taxes for the rich." He paid " a true tax rate of 0.1%, or less than 10 cents for every $100 he added to his wealth.'
https://www.propublica.org/article/th...">https://www.propublica.org/article/th...
DDK 2 years, 10 months ago
VAT on customs duty, plus freight plus invoice value is pure piracy, no matter how you cut it.
ohdrap4 2 years, 10 months ago
True. I use a courier that prints a little pie chart of the amount paid to him.
I often pay 40-60% I paid amazon to land the package here.
But remember, a merchant pays the same, then marks up, so often this is still much cheaper than the local price.
Unless the product is very big, or heavy, hazardous or perishable, in which case I buy locally and leave the headache to the merchant.
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