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Thursday, February 14, 2013
The Bahamas Government is proposing to implement a Value Added Tax (VAT) on July 1, 2014
THE Government is proposing to implement a Value Added Tax (VAT) on July 1, 2014, at a rate of 15 per cent, the Minister of State for Finance said yesterday, adding that the hotel industry would be subject to a lower 10 per cent rate.
Michael Halkitis, speaking at the first session of a ‘Meet the Minister’ series hosted by the Bahamas Chamber of Commerce & Employers Confederation (BCCEC), said: “Within the proposed package of tax reforms, it is recommended that a VAT be introduced, as of July 1, 2014, at a rate of 15 per cent, consistent with VAT rates generally charged elsewhere.
“Such a VAT rate, in combination with the other reform proposals, would ensure that Government will have access to adequate revenues streams for the future.”
The Government plans to eliminate the 10 per cent hotel occupancy tax rate, replacing it with VAT at the same rate. A 10 per cent VAT rate will also be applied to all hotel food and beverage sales.
And, in a bid to ensure VAT will have a ‘neutral’ impact, meaning there will be no increase in the tax burden, Mr Halkitis said Excise Tax rates will be reduced in proportion to the 15 per cent VAT rate.
Among products subject to an Excise Tax rate are automobiles, tobacco and petroluem products, all the Government’s high-yielding revenue items, which were moved under this heading to protect them from World Trade Organisation-induced tariff cuts.
Prime Minister Perry Christie yesterday tabled the Government’s White Paper on tax reform in the House of Assembly, which proposs to exempt companies with an annual turnover of $50,000 or less from having to pay VAT.
“We are going to have extensive consultations with the public on this. We want business people to buy in. We don’t want to have a situation where the cost of living is going to increase,” said Mr Halkitis.
“We think it’s an important part of the overall financial process. We benchmarked other countries around the world and looked at our economy. Some countries charge more. Not many countries charge less. We didn’t want to go too high. We wanted to use something that is in use in other jurisdictions.
“In our discussion, we will determine whether that should be higher or whether it should be lower. Nothing is set in stone. We wanted to put some of our thoughts out there and get some feedback. Certain industries, for example, the tourism industry, might be treated a little differently,” said Mr Halkitis.
“For competitiveness reasons, it is proposed to eliminate the hotel occupancy tax and to subject hotel accommodations to VAT rather than subject them to both taxes.
“This will allow hotels to claim VAT input credits on their purchases of materials and supplies, and will be consistent with the current Hotels Encouragement regime.
Hotels will benefit from lower compliance costs, and the Government will benefit from administrative economies of scale,” the Minister added.
“However, again for competitiveness reasons, it is proposed that hotels be subject to a VAT rate equal to the current hotel occupancy tax rate of 10 per cent. Similarly, given the large contribution of hotels to economic activity, it is proposed that food and beverage sales in hotels be subject to VAT at the same rate of 10 per cent.”
Mr Halkitis added that all businesses will come under VAT, but only those with an annual intake of $50,000 or less. “We are proposing that businesses with an annual turnover of $50,000 or less are exempt. If you do that you end up with about 3,200 business that would be registered. We think that number is manageable. We should be able to administer that if you put in the proper system,” said Mr Halkitis.
As to the fate of Customs Duties, Mr Halkitis said: “It is generally acknowledged that, based on the experience of other acceding countries, pending membership in the World Trade Organisation (WTO) will require reductions in Bahamian bound tariff rates. The final determination of those import tariff reductions will be subject to the ongoing WTO access negotiations.
“However, the excise taxes that are currently imposed on selected products, namely tobacco, petroleum, vehicles and certain luxury items, will be unaffected by WTO accession as, by law, they are imposed at the same rate on both domestic production and imports of those products.”
He added: “Given the relatively high rates of excise tax imposed on a number of excisable items, it is proposed that all excise tax rates be reduced by an amount just sufficient to counteract the imposition of a 15 per cent per cent VAT on those products. As a result, the total tax payable on excisable products would remain unchanged.
“The Government believes that its programme of tax reform, when fully implemented, will result in considerably greater and more efficient revenue collection, the proceeds of which will better equip the Government to meet the increasingly complex financial needs of our nation. More fundamentally, it will bring into being a new system of taxation that shares the tax burden more fairly and equitably,” said Mr Halkitis.