MINISTER of Economic Affairs Michael Halkitis.
Photo: Donovan McIntosh/Tribune Staff
By RASHAD ROLLE
Tribune Senior Reporter
ECONOMIC Affairs Michael Halkitis defended the anticipated increase of value added tax on breadbasket items, saying it follows expert advice and best practices around the world.
Breadbasket items are currently zero-rated for VAT.
“This is a sensitive topic,” he said during the Office of the Prime Minister’s press conference yesterday.
“We grappled with this when we first implemented VAT and we grapple with it now. All the studies will tell you, any studies that are done, (say) have one rate, preferably a low rate, minimum exemptions; it’s easier to administer, it reduces the possibility of leakage, you collect your revenue, revenue administration is much better, you get more revenue to enable you to do other things. It is not something that is taken lightly. We believe it’s the right decision.”
In 2017, before the Minnis administration zero-rated some items, the International Monetary Fund said The Bahamas had the most productive VAT regime in the Caribbean. The IMF consistently said the country should resist efforts to enact exemptions.
Mr Halkitis said: “Overall, you are reducing the rate from 12 to ten so everything else, every other thing you spend money on, instead of paying 12 percent VAT, you’re now paying ten, so that’s a reduction. The Department of Statistics does a study called the household expenditure survey and they say the people at the lowest income level spend about 25 percent of their income or their spending is spent on food so 75 percent goes on something else, so the 75 percent that goes on something else that’s VAT-able, they’re going down from 12 to 10, from the items that were on the breadbasket items and are now zero-rated, there will be a ten percent VAT.
“We understand it is an emotional issue, we know that it gets to be a very hot political issue, but our job is to do what’s in the best interest of the country and we believe this decision is and we will be seeking to explain it more as we go along and ask the Bahamian public to give us an opportunity to let this work and they will see the benefit of it.”
Earlier this year, the Progressive Liberal Party said it would reduce VAT to ten percent for just one year, then re-evaluate the country’s fiscal situation. Mr Halkitis, however, said yesterday that VAT will remain at ten percent.
“We don’t expect that we have to go back to 12 percent next year,” he said. “I think we have taken it out of our plan and in our plan it says ten and we are prepared to go with ten. We’ve done an economic model, I think the prime minister has undertaken to table it in the House of Assembly, where we’ve asked some experts to do some scenario analysis, what will happen if this happens, xyz happens and they gave us a report.”
Mr Halkitis said the ten percent VAT rate will apply to most items that are now zero-rated.
“I know…people will be concerned about will these things go up, particularly when you deal with insurance and it’s time to claim it’s better to have no exemptions and anybody who needs the direct assistance you give it to them, so we’re getting rid of all the zero ratings and exemptions except for some selected ones and electricity,” he said.
Yesterday, Free National Movement St Barnabas MP Shanendon Cartwright said the reintroduction of VAT on bread basket items will place a burden on the poor.
“The recent stated proposal by the government to reverse that policy and restore VAT on breadbasket items would be a paralysing burden on the backs of the poor, the most vulnerable and thousands of Bahamians struggling to make ends meet, including thousands in the St Barnabas constituency,” he said.
“To take away this much needed relief directly from Bahamian consumers would only increase hardships and force undue pressure on an already challenged social service safety net. While the government looks to make up its revenue shortfall with its new proposed tax policy it ought not be done at the expense of the underserved in our society, the disenfranchised and those Bahamians that need relief the most,” he said.
Prime Minister Philip “Brave” Davis has said the anticipated VAT reduction to ten percent should be in place by January 1, 2022.