The Tribune

By NATARIO McKENZIE

Tribune Business Reporter

nmckenzie@tribunemedia.net

The Government’s decision to opt for a “relatively low” 7.5 per cent Value-Added Tax (VAT) rate should ensure the Bahamas avoids a major inflationary impact unlike other nations, an international tax expert says.

Alexander Baulf, a taxation specialist with Grant Thornton UK, said the Bahamas was starting with a low rate compared to the VAT levies prevalent in most countries that already employ this tax.

“Today there are over 140 countries with VAT. I think one of the key things in looking at the Bahamas’ legislation is that the Bahamas has gone in with a relatively low rate, particularly when you compare it to the average rates in, say Europe, which is currently north of 20 per cent and as high as 27 per cent in Hungary,” Mr Baulf said.

“One of the reasons there is a relatively low rate [in the Bahamas] is because there aren’t a lot of reduced rates, and the scope of zero rating and exemptions is reduced compared to Europe and the rest of the world.

“Because you have got that broader tax base, the Government has gone in with a lower standard rate. That shouldn’t have a massive impact in terms of pricing and inflation, and will hopefully help the Government avoid situations like Japan, where the rise in consumption tax has been a contributing to inflation.”

Mr Baulf also encouraged the Government to apply “a soft touch” when it came to enforcement of the VAT regime during the initial months. The Christie administration has promised to adopt just such an approach for the 2015 first half.

While unable to speak to the possibility of any increases in the Bahamas’ VAT rate in the future, Mr Baulf said this was a global trend.

“It has certainly been a trend globally that governments are increasing indirect tax rates. That’s certainly a global trend. I certainly don’t know if a rate rise in the Bahamas in the next five to 10 years is possible. It will be affected by a lot of external factors, as well as political factors,” said Mr Baulf.