The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Government yesterday unveiled a rare $40.2m Budget surplus for July 2022 despite VAT revenues declining by more than 25 percent or some $36.5m year-over-year.

The Ministry of Finance signalled that the 2022-2023 fiscal year had got off to a positive start with the $40.2m showing by how much the Government’s tax revenues exceeded its spending for that month - the first in the current Budget period.

The performance, which represented a major improvement over the narrow $500,000 surplus produced in July 2021 under the former Minnis administration, was driven by a combination of revenue increases and spending reductions with the Government having wound-down its previous COVID-19 support for both individuals and businesses.;

“Revenue receipts of $259.1m represent a 7.9 percent ($19m) year-over-year increase,” the Ministry of Finance’s July report revealed. “Tax collections totalled $230.9m, supported by year-over-year improvements of 156.6 percent in other taxes on goods and services to $49.1m; 82.7 percent in international trade and transactions taxes to $66.8m; 79.1 percent in other revenue to $0.6m; and 16 percent in property tax collections to $8.7m.

“Aggregate expenditure equated $218.9m, an 8.6 percent ($20.7m) decrease compared to the same period of the prior year. Recurrent expenditures declined 6.5 percent ($15m) compared to the prior year and totaled $216.2m..... Capital expenditures declined 67.3 percent ($5.7m) to $2.7m, and included $1.8m to acquire non-financial assets and $1m in capital transfers.”

The improvement, though, was achieved in the face of a significant reduction in the VAT collections that represent the Government’s main revenue source. These fell by $25.7 percent, or $36.5m, to $105.5m compared to the $142m collected in July 2021. What is especially significant is that July’s VAT intake represents one of the four months annually when quarterly registrants - as well as their monthly counterparts - file and pay this tax.

Michael Halkitis, minister of economic affairs, and Simon Wilson, the Ministry of Finance’s financial secretary, are both understood to be attending the International Monetary Fund (IMF) and World Bank meetings in Washington D. C. and could not be reached for comment before press deadline.

However, Kwasi Thompson, ex-minister of state for finance in the former Minnis administration, last night said he and the Opposition were “extremely concerned” that the Government’s VAT revenues have declined against 2021 comparatives for two consecutive months.

“According to the Government’s 12-month Fiscal Snapshot, VAT revenue for the month of June 2022 was $13.7m or 14 percent less than what was collected in June 2021,” he said in a statement. “In the Government’s monthly budget report released today, for July 2022 VAT collections were some $36.5m or 25 percent less than they were in July 2021.

“This is in spite of the fact that the economy has rebounded substantially compared to last year with tourism and employment numbers almost reaching pre-pandemic and pre-Dorian levels....The fall-off in VAT revenue is even more concerning given this government’s increased spending when we in the FNM have consistently called on them to exercise prudence and restraint.

“The Government must explain why, for two consecutive months, the VAT receipts are significantly down even though the economy is significantly stronger and the Government has in place an announced Revenue Enhancement team.” Mr Thompson called for “immediate answers”, especially in the wake of the latest downgrade to The Bahamas’ sovereign creditworthiness by Moody’s last week.

VAT has been something of a political battlefield following the Davis administration’s decision to cut the rate from 12 percent to 10 percent, eliminate the multiple zero ratings and exemptions introduced by its predecessor, and revert to the initial low rate, broad-based model. Many observers have been keenly watching to see if the new structure will yield the same revenues as previously.

VAT is projected to generate some $1.412bn in revenues for the Government during the 2022-2023 fiscal year, representing a $300m increase upon the $1.1bn collected in 2021-2022 - itself a 53 percent jump from $741m in 2020-2021.

“The improved performance is largely attributed to an increase in revenue collection from international trade and transaction taxes ($30.2m), other taxes on goods and services ($30m), and other non-tax revenue ($11.4m),” the Ministry of Finance said of the July results.

“Similarly, July 2022 month-over-month revenues increased 17.1 percent ($37.8m), largely attributed to a 72.4 percent ($20.6 m) rise in other taxes on goods and services and 23.9 percent ($20.4m) increase in VAT receipts.” The latter will have been aided by the fact that July’s VAT filings included quarterly registrants, who did not have to pay such taxes in June.

VAT’s July reduction came after Mr Wilson previously indicated that collections related to real estate sales would likely increase for the month as many buyers held back from bringing their conveyances forward for stamping in a bid to attract the 2022-2023 Budget’s lower rates.

And, given that 10 percent VAT is also levied on border imports, it follows that there should have been a proportionate increase that matched the jump in international trade and transaction taxes. However, tourist stopover and cruise passenger departure taxes also fall under this heading, and given that the latter was still virtually non-existent in July 2021 is is unclear how much of the international trade increase it drove.

The Ministry of Finance’s July performance report was released just hours after Michael Pintard, the Opposition’s leader, sent a formal letter to the Prime Minister complaining about the “tardy” publication of fiscal reports that breaches legally-mandated deadlines set by the Public Financial Management Act.

Mr Pintard argued there was no good excuse for missing these deadlines, given that the July report was supposed to have been released by early September 2022 - one month ago. However, Mr Wilson previously told this newspaper that the Ministry of Finance’s decades-old reporting systems mean it is simply impossible to produce accurate reports within this timeframe.;

“Section 69 (2 and 3) of the Public Financial Management Act provide the statutory deadlines for the submission and publication of monthly budget reports, which must be provided to Cabinet no later than four weeks after the end of the reporting period, and then to be made public no later than one week following that. The exception is the final month of the fiscal year where an eight-week timeline is provided,” Mr Pintard wrote.

“Presently, the monthly reports for July 2022 and August 2022 have yet to be published consistent with the legal deadlines. These reports are thus past due. The Ministry of Finance has been habitually late over the last several months in the publication of the monthly and the quarterly reports. We cannot imagine that there is any acceptable reason for this chronic tardiness.

“When the Government is tardy with these reports, it undermines the credibility of the administration and it limits the ability of taxpayers and all interested stakeholders to assess the fiscal performance of the Government and hold the Government to account.”

The Ministry of Finance, in its statement, added: “Total expenditure contracted by 8.6 percent ($20.7m) compared to the prior year as activities continued to normalise to pre-COVID trends. COVID-19 extraordinary spend was reduced on goods and services ($11.8m) and COVID-19 specific social assistance ($14.4m).

“Capital spending declined by $5.7m as several COVID-19 stimulus projects completed. Compared to the month prior, July 2022 total expenditure decreased 59.5 percent ($321.1m) to $218.9m, largely owing to supplementary budget expenditures for fiscal year 2021-2022 posted in the prior month.

“As a result of the above, government’s fiscal position for July 2022 resulted in a $40.2 million surplus and a modest widening in the net debt position of $4.8m as Government took advantage of continued improvements in fiscal performance to reduce its financing needs.”