The Tribune

By YOURI KEMP

Tribune Business Reporter

ykemp@tribunemedia.net

A Cabinet minister says the Government presently has no plans for cutting VAT on gasoline to help offset inflationary pressures from volatile global oil prices.

Senator Michael Halkitis, minister of economic affairs, asked whether the Government was contemplating such a move prior to the weekly Cabinet meeting, simply said: “No.”

His confirmation of the Government’s position comes despite calls from the private sector for it to “cap” the amount of VAT it earns on every gallon of gasoline sold in this nation.

Ken Hutton, the Abaco Chamber of Commerce’s president, last week called for the imposition of a 45 cents per gallon ceiling on the Government’s VAT earnings as a means to “alleviate the pain” of soaring fuel costs.

He argued that his proposal, which had received backing from other Family Island Chambers, was likely the only short-term measure The Bahamas could take to ease the impact of near-record oil prices, although these fell back yesterday to below $100 per barrel on renewed hopes of a Russia-Ukraine ceasefire and concerns about new COVID lockdowns in China.

Mr Hutton, though, last week said that while any “cap” would deprive the Public Treasury of a potential revenue “windfall” from higher gas prices, the Government would not “lose any money” while helping to mitigate some of the negative impact on hard-pressed Bahamian households and businesses still struggling to recover from COVID-19’s economic devastation.

Barbados appeared to be taking note, as the southern Caribbean nation on Tuesday announced the imposition of just such a VAT “cap” on sales of gasoline and diesel fuel. Due to take effect today, it will cost the Barbadian government some $25m in revenue that will instead be retained by drivers at the pump.

That country’s prime minister, Mia Mottley, said the move will reduce the per litre gasoline price by 14 cents to $3.99, while the cost of diesel will drop by the same amount from $3.46 to $3.32 per gallon.

Tribune Business reported previously that one of the few beneficiaries from the surge in global oil prices and, indeed, all current inflationary pressures, is the Public Treasury. Given that VAT and import/Excise duties are levied as a percentage on the landed cost of imports, the across-the-board increase in prices could spark a revenue windfall for the Government unless consumers cut-back.

Vasco Bastian, the Bahamas Petroleum Dealers Association’s (BPDA) vice-president, recently confirmed to this newspaper that the Government is currently earning $1.54 per gallon of gasoline when it is sold to end-users. That means, based on current retail prices, that between 25 percent and 30 percent of each gallon of gasoline sold goes to the Public Treasury.

Petroleum products are thought to be the largest VAT-generator for the Government. Sir Franklyn Wilson, chairman of FOCOL Holdings, the Shell distributor, told Tribune Business that the industry’s tax contribution was “very substantial”, although he declined to provide a figure, and added: “That’s the way it is. That’s the reality of the tax system.”

Thus while reducing, or capping, the Government’s fuel tax take remains the only short-term option for The Bahamas to mitigate the impact of volatile global oil prices, the Davis administration will have to balance any such action with its need for revenue given the ongoing fiscal crisis that the country faces.

Mr Halkitis, meanwhile, said it is “early days” to judge what impact the VAT rate cut to 10 percent is having on the economy and government revenues. A better gauge will come when March’s VAT returns and payments are filed towards the end of April, as this will include all VAT registrants - monthly as well as quarterly payers - for the first time since the rate was slashed from 12 percent.

“This is March, so we will have the experience of the returns really for January. The returns for February will be coming soon,” Mr Halkitis said. “So far, it’s holding steady. There does not appear to be any reduction in terms of what the Government is taking in, which is consistent with forecasts.

“But, again, it’s early days, and so as we get to another month or two, we should be able to see a trend being established.” While tourism’s recovery is leading the rebound in government revenues, it is also earning income from taxing activities that are either booked offshore, such as Airbnb vacation rentals, or which take place in the digital economy via the likes of Facebook.

Mr Halkitis said: “We are receiving revenues from them. Because they’re new, as we go along what we do is we assess how it’s working, and look at ways for improvement. But it’s in place and we have what we call a Revenue Policy Committee, which will be looking at things across the government sector as to how your revenue collection was working and ways to improve it.

“The Government has an ongoing digitisation process. We actually have a loan with the IDB (Inter-American Development Bank) that we’re executing to digitise the processes within the Government...The more that we can make processes digital in terms of revenue collection, it improves our collection, improves our accounting, auditing, all of that.”