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Vat Cut By Jan 1: Pm Davis In Pledge Over 10% Tax Rate

Prime Minister Philip “Brave” Davis in Parliament. 
Photo: Donovan McIntosh/Tribune Staff

Prime Minister Philip “Brave” Davis in Parliament. Photo: Donovan McIntosh/Tribune Staff

By KHRISNA RUSSELL

Tribune Chief Reporter

krussell@tribunemedia.net

THE Davis administration’s much anticipated value added tax decrease to 10 percent will be implemented by no later than January 1, Prime Minister Philip “Brave” Davis said yesterday.

But with the two percent reduction will come the elimination of the zero VAT rating on a variety of items.

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According to Mr Davis, a draft bill for the reduction from the current 12 percent rate should have been laid on the table of the House of Assembly yesterday, but drafters did not complete the legislation.

However, Mr Davis said by next week, the document would be presented to Parliament. The House will meet again on Monday.

“The latest will be the 1st of January because we need time for businesses to recalculate their systems,” Mr Davis said following the morning sitting of Parliament when asked for a specific date for the reduction of VAT.

When he addressed the matter in the House of Assembly earlier yesterday, Mr Davis revealed the government’s decision to eliminate the zero-rating under VAT on certain items. He did not say which items this includes, but breadbasket items and medications are currently free of VAT at the point of sale.

 An International Monetary Fund September 2021 study has said narrowing the base of the VAT through zero rating and exemptions reduces efficiency, lowers revenue and increases administrative compliance costs.

 The study deemed exemptions and zero ratings as an inefficient way of achieving redistribution objectives as the bulk of benefits accrue to high-income households. Redistributive goals are best achieved through targeted cash transfers to households, according to the IMF.

 “I am very pleased to announce we are moving forward with this reduction in the VAT rate,” Mr Davis said in his 2021-2022 supplementary budget statement.

 “I believe it will help Bahamians and help our economy. And the reduction is being managed in a way that is fiscally responsible.

 “The Ministry of Finance team has worked long hours, along with some of the brightest minds at the University of The Bahamas and the government and Public Policy Institute, as well as with international consultants, to perform extensive modelling and financial analysis to ensure that the VAT reduction does not adversely affect our fiscal position.”

 He continued: “With the reduction in the VAT rate, we are eliminating the zero-rating under VAT on a variety of items. Price controls are in place to ensure breadbasket items will be fairly priced. The VAT exemption for electricity bills and the special economic zones are untouched.”

 Mr Davis said when the tax was initially introduced to the country in January 2015 by the Christie administration, it was deliberately simple in design. However, he said the tax policy has moved away from the original plan and intent.

 “The implementation of VAT in The Bahamas was efficient, and we were praised internationally for our very successful launch,” Mr Davis said. “In recent years, however, the country’s tax policy has moved far away from the original plan and intent. Indeed, through the actions of the previous administration, the VAT base has been eroded by the implementation of many classes and types of items being zero-rated.

 “These changes were considered by experts to be ill-advised and poorly executed, who believe zero rating schemes are an ineffective and inefficient way to provide relief to the vulnerable in society.

 “Instead, there is a preference for targeted relief such as conditional cash transfer programmes. My government is committed to increasing direct cash transfers to families who need the support with the reintroduction of the RISE programme, about which you will hear in more detail from the Minister of Social Services and Urban Development (Obie Wilchcombe).

 “Based on the modelling and analysis conducted by my team, we are confident that with the elimination of zero-rating categories, and the economic uplift to consumers, government revenues are protected.

 “The model and the analysis of the results will be published on the government’s budget website. I requested that the modelling with respect to the 2018 increase in VAT also be published, but I have been advised that it is conveniently no longer available,” Mr Davis said.

 VAT was initially introduced at a rate of 7.5 percent, but later increased to 12 percent by the Minnis administration in 2018.

Comments

ohdrap4 6 months, 4 weeks ago

I have been saying that since before the election. Vat free items would perish. But they kept the price controls, reviled by merchants.

That said, if Dorian & Covid had not happened, the price controls would be gone. That is why a number of VAT frre items were not in the control list.

I am stashing some of the vat free items , if only because of price increases.

Butter is now 3.00. Adding VAT 3.30 by January.

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joeblow 6 months, 4 weeks ago

... VAT should be repealed if is not going to be used for the purpose for which it was implemented (reducing the national debt). As it stands, it only gives the government more money to waste!

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Proguing 6 months, 4 weeks ago

I remember having a discussion with a bigwig of an accounting firm advising the government on the introduction of VAT. He tried to convince me that it was necessary to reduce the national debt….lol

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sheeprunner12 6 months, 4 weeks ago

VAT10 across the board will bring in more Govt revenue. Will close the holes that exist with the exemptions and entice ppl to spend more than they did with VAT12

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Dawes 6 months, 4 weeks ago

The extra spending will not cover the 2% loss, the extra 10% on Breadbaskets and others will cover it. Only the wealthy have extra money sitting around that they may then decide to spend, but then i doubt the 2% bothers them that much.

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moncurcool 6 months, 4 weeks ago

Only people who like to go into debt spend more if VAT is reduce. Smart people learn to save that extra and build wealth.

What Davis is proposing is only going to hurt the poor and wipe out more of the middle class. IF you think reducing VAT to 10% (for one year) and zero out all the others items will help the majority of people, you are dreaming.

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Proguing 6 months, 4 weeks ago

VAT reinstatement on breadbasket items will wipe out the poor who are already suffering from the rise in inflation induced by Biden’s energy transition policy

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K4C 6 months, 4 weeks ago

What great news from the PLP, it's almost as if Davis said Bahamians will get a chicken a day, but there's a small catch, you'll have to share that chicken with 2 of your neighbours

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Proguing 6 months, 4 weeks ago

Yep, what he deposits in one pocket he withdraws from another…a real magician

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sheeprunner12 6 months, 4 weeks ago

All of our Govts continue to kick the tax can down the road. The real answer is income, capital gains & corporate tax. But the 242 debt crisis will force that on us by the IMF. Sooner rather than later.

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joeblow 6 months, 4 weeks ago

... it does not matter what means government uses to raise revenue if they continue to spend and waste more than they collect!

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M0J0 6 months, 4 weeks ago

I say give it a try, you will see the diff. in your bill slightly and yes no more zero rated but on the flip side no income tax or other taxes needed to plug the hole the zero rated will cause.

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sheeprunner12 6 months, 4 weeks ago

Agree to a point. But Govt must make an effort to collect ALL of its taxes that already exist. That's a bigger problem

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licks2 6 months, 4 weeks ago

You you will see a difference in government revenue for sure!! That is not the question. The question is saying he will actually reduce collection by 2%! They will reduce collecting that 2% value!! But, the removal of zero-items, they actually added approximatly 8% increased in government revenue! It is a fact of science or maths!! A reduction of 2 units, add 10 units will increase equal and actual increase of 8 units!!

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BahamaRed 6 months, 4 weeks ago

All he did was make the grocery store bill higher for those who can barely afford it now. Some folks were barely getting by on VAT free breadbasket items, now you want to add a 10% increase. So the $20 they were scrapping to buy tuna, sardines, bread etc will now be unable to stretch as it did before. Meanwhile the folks who weren't even buying VAT free breadbasket items that often get a 2% decrease (eg. I buy canned tuna to feed my dogs). Someone help me understand where this is helping out the poor people in our country.

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sheeprunner12 6 months, 4 weeks ago

The poor will always be poor because most look for handouts. But Brave did say that the RISE cards will be back to help the poorest of the poor. More poor ppl need to get off social services and take control of their lives

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bahamianson 6 months, 4 weeks ago

Did he say this on the campaign trail? He said he would lower VAT to 10% , but did he speak about adding it to other items that were VAT free? I dont like this kind of politics.

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tribanon 6 months, 4 weeks ago

Davis is using a classic bait and switch political tactic with smoke and mirrors added in order to appear to make good on his VAT reduction promise. But in reality all he's doing here with his tinkering to this horribly regressive VAT system of taxation is sneakily taking from Poor Paul's left pocket to put into Poor Paul's right pocket while Wealthy Peter gets something added to both of his pockets and laughs all the way to the bank.

When Davis made his VAT rate reduction promise to buy Poor Paul's vote he did not tell Poor Paul that he would end up losing the benefit of his essential VAT-free items in order to pay for the lower VAT rate that will disproportionately benefit Wealthy Peter.

Bahamians should have long ago woken up to the fact that the word "Progressive" in the PLP party name is never given the time of day by the party's political elite whose only goal is to greatly enrich themselves and the wealthier class of Bahamians they truly represent by taxing the rest of us to death by hook or crook.

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Proguing 6 months, 4 weeks ago

Exactly a poor family spending $1000 of basic foods and rent will now have to pay $100 more. On the other hand a rich Bahamian buying a $100,000 BMW SUV will now pay $2000 less.

In other words the poor will be paying for the lower VAT rate of the rich...

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licks2 6 months, 4 weeks ago

We "get swing". . .yinna een see what happened here. . .VAT gern on yinna rents and them other things that were free from the tax in the past!! First thing yinna "talked about" was breadbasket items!! BB items een the big "kickers" them. . .big items things like rent on living spaces are the "swing" that this government did!! They lowered the whole thing by 2%. . .raised the 2% on some "big items" buying powers. . .effectively raising the VAT tax by spreadig it out by about 4 to 5% by adding those "heavy buy" items that were exempted!!

Congradulations. . .YINNA RENTS AND THING JUST WENT UP!!

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ohdrap4 6 months, 4 weeks ago

RESIDENTIAL RENT WILL CONTINUE TO BE VAT FREE.

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licks2 6 months, 4 weeks ago

The PM only talked about light continues to be VAT free. . .how you can say that rent will remain VAT free?

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ohdrap4 6 months, 4 weeks ago

Most residential landlords are not vat registrants.

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tribanon 6 months, 4 weeks ago

The gestapo COVID-19 ambassadors are about to be re-trained to become the new gestapo VAT enforcers who will then be knocking on all doors as they go about hunting down the VAT dodging residential landlords.

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M0J0 6 months, 4 weeks ago

I wouldn't say swing, I would say we finally have a gov. whom looks at cause and effect. Yes zero is out but they are plugging the hole of national debt. I agree it did not come out as planned but it was a hell of an intelligent idea. When the gov. gives free things something has to pay for it, so hence he gave us a break on both sides, vat and national debt. Those complaining now will thank him later down.

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Proguing 6 months, 4 weeks ago

How is he plugging the hole of the national debt? As a reminded it was the PLP who introduced VAT to pay back the national debt. How did that work out?

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Dawes 6 months, 4 weeks ago

They aren't plugging the hole though. They admit the hole will get bigger, but this will be covered by increased spending and those 0% items being 10% now. But there is nothing in it about plugging the hole.

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sheeprunner12 6 months, 4 weeks ago

Our Govt lied about paying down on national debt from Day One. Now, it's almost out of hand as we approach 100% debt:GDP ratio. IMF will step in soon.

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tribanon 6 months, 4 weeks ago

Same body of corrupt politicians every four or five years, whether clothed as PLP or FNM. It's why I haven't voted for a candidate from either of these two political parties since 1992. Sadly, dumbed down Bahamian voters still refuse to accept that for decades now the hierarchy of both the PLP party and the FNM party have been steeped in corruption. And this is the ace card the IMF, IDB, etc. have all along been holding while patiently waiting for the right moment to pull the rug out from under us.

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realfreethinker 6 months, 4 weeks ago

That is pie in the sky dreams. It is highly unlikely that Bahamians are going to spend more because vat is 2% less. You really think that people will spend $100 00 to save $2.00

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moncurcool 6 months, 4 weeks ago

What cause and effect are they looking at? And what hole in the national debt is being plugged? You and Davis must be have the same pie in the sky dream

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licks2 6 months, 4 weeks ago

Carry ya lying behind and gee that nonsense to ya party peoples them!! IT WAS A DANG "SWING". . .THEY SAID THEY WILL "REDUCE VAT TO 10%". . .THEN THEY REDUCED VAT TO 10% BUT "MOO" THE BOTTOM OUTTA THE SCALE SO THAT THE "VAT KITTY" SINK DOWN AND THEM "FLOW" OUTTA THE SIDES. . .ACCOMADATING THAT 2% WHAT SANK FROM THE TOP. . .WHILE ADDING AN UNLIMITED PARAMETER "PLENTY" MORE MONEY IN THE SIDES!! BAM. . .MOO 2 FROM THE TOP AND ADD 100 ON THE SIDES!! Then saying. . ."see, it went down by 2". . ."I bring it dan fer ya"! If that een "swinging" . . .you tell me what is??

WE ALL UNDERSTAND WHAT A REDUCTION IN TAX MEANS!! Ya think we would "like" him telling US: " I ger reduce VAT by 2% then place VAT on excempted items. . .ya hear"! That is what the people "heard" Mr. Davis say! That's why the business community was saying: "he mussie crazy aye. . .chile da carn happen"! I for damn sure know what he did was not what he was "telling us". . .LOI!!

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JokeyJack 6 months, 4 weeks ago

The people decided to wait another five years before allowing Lincoln to share the wealth of this nation with them. This is not a problem. VAT can be 90%, it dont matter. Poor Bahamians LOVE being poor. Gives 'em something to complain about.

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licks2 6 months, 4 weeks ago

Now of all the dumb stuff I heard before and after the election. . .POOR LIKE BEING POOR?? Well if ya statement is correct. . .they will now get a-whole-lot-of-loving FROM THIS GOVERNMENT!! Now the poor will be getting a cost of living increase since we first bring in VAT!! This will "jook" PM Davis until the next election. . .he just did what he promised he would not do. . .rise taxes. . .like the FNM did!! AND HIS 1ST MAJOR ACTION. . .MASSIVE RAISE IN TAXES!!!

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M0J0 6 months, 4 weeks ago

LOL these comments. Nothing was done under the last administration but spending so now we have to plug the holes. I personally rather 10 than 15 that was coming if red sea plagued us again.

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whogothere 6 months, 4 weeks ago

Someone help me make sense of this - food store peeps, accountants etc...let's take milk...It's what, maybe an average of $4 something per litre right? Milk in the USA landed wholesale is maybe $3.5 per litre?

Whatever it is I'm just going to take those to figures for argument sake...that means the taxable value added to milk (seeing as we don't produce and almost all milk is imported) is maybe 50 cents - right? so multiplying by 0.1 our government will start to net 5 cents on every litre of milk. Let's say if 350k Bahamians buy 2 litres of milk per week. Thats 36.4 million litres per year, so yay government gets make an additional 1.8 Million per year - wonderful take that IMF!!

But on the flip side lets take Atlantis with 3800 rooms, average nightly rate of maybe 450 (for argument sake) and maybe a annual 60% occupancy their taxable income is going to be around 374 Million and with a 2% drop in vat tax they stand to pay the government around 7 million less than they would before reductions... THATS ONE BUSINESS (and just the rooms - never mind the booze and food sales)... their reduction in payment dwarfs essentially (probably) the entire amount gained from taxation of the entire residential consumption of Milk in The Bahamas (warranted I'm using made up numbers but I think they're within the realm of reason - but let me know if not)...!?

Am I computing this right? Cuz if a lay bird like myself is getting that this don't make a damned bit of sense on my home calculator - either I'm very wrong with my starting assumptions or something is very wrong with this decision...

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M0J0 6 months, 4 weeks ago

my assumption is that there were certain sectors which profited from exemptions and certain areas of zero rated, now all str8 across the board will pay so in that sense there will be a surplus all around.

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whogothere 6 months, 4 weeks ago

RIght now only thing mentioned are Breadbasket foods (low cost) and medicines (higher-ish cost) but both low margin - value added taxed works on the premise that value that is added is taxed - the lower the margin the lower the value added...if breadbasket items are now sold at break even or at a lost because price controls literally nothing gets added to value and so no tax revenue gained even though you are now charging 10% vat on them...meanwhile your high margin items enjoy a 2% discount. The equation does not balance...

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Dawes 6 months, 4 weeks ago

You are not taking into account the VAT on the initial price so the VAT on the $4 milk will be $0.40. Over the year in your example that will be $14.5 million (if my math's are right). Though i highly doubt nearly all Bahamians go through 2 liters a week. In order to pay for it they feel the compliance will go to over 90% again which will lead to the extra revenue.

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whogothere 6 months, 4 weeks ago

PS/meanwhile "price control" my black ass - ha - you can bet that every store will creep those prices up... Big business will get to saving to profit and the average Bahamian will barely the difference..or more likely suffer because of it.. Just increase your nurses and teachers salaries by 5% - it will probably cost you less and the country will be better off because of it..

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licks2 6 months, 4 weeks ago

Now you understand what Minnis was saying when he said: "yinna ger see why I called this snapped election. . .just wait till afater the election. . .who win ger tell yall"! Chief yinna JUST GONE WAY PAST 15%. . .DON'T FORGET WHEN CHRISTIE BROUGH IN VAT IT WAS AT A 7%. . .NOT 10%!! FNM took it to 12% and "soften" the blow of increase by intruducing zero-rated items. . .giving the people some relief since 2017!! So by reducing back to 10% and removing zero-rated items from excemptions. . .this government took VAT to an estimated 20% VAT!! So unless the PLP "gat some magic" to give people them plenty more money to offset that "crazy" tax increase. . .THE HOLES ARE IN THE HEADS OF THEM JACK AZZES WHO ARE ADVISING PM DAVIS!! BECAUSE IN THE REALITY THE REST OF USE WITH SOME LIL BIT ER BRAINS. . .YA CAN'T PLUG-UP A FEW HOLES IN THE BUCKET BY "DIGGING" PLENTY MORE HOLES IN THE BUCKET!! A CRAZY AND DRUCK MAN WILL TELL: " HEY FOOL. . .YA HAVE TO PLUG THEM HOLES TO STOP DAT WATER FROM LEAKING OUTTA DA BUCKET. . .NOT DRILL MORE HOLES IN THE BUCKET"!!

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BONEFISH 6 months, 4 weeks ago

The yin and yang of Bahamian politics. The FNM zero-rated bread basket items. To make up for the lost of income, they increase vat from 7.5% to 12%. The PLP now will remove the zero-rates on bread basket items. this is done to compensate for the reduction of the vat rate from 12% to 10%. They will attempt to soften the blow of the removal of the zero-rates on the bread basket items.

What is needed for in this country is a serious discussion on tax reform. The Bahamas can not continue to kick that can down the road. However Bahamians are not ready for that. So let the band play on and rearrange the deck chairs on the Titanic.

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Proguing 6 months, 4 weeks ago

What this country needs is for the government to collect due taxes and reduce expenses.

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