Saturday, November 30, 2013
• Five years after his
election, the U.S. President has not closed the prison on the illegally held
Guantánamo Naval Base
Wednesday, November 27, 2013
If The Bahamas government cannot collect what is now owing ...how will it supervise and collect the taxes from Value Added Tax (VAT)?
Warning On Vat From Barbados
Nassau, The Bahamas
OVER the weekend, Elcott Coleby, deputy director of Bahamas Information Services, sent a release to the press to announce the downgrade by Standard & Poor of Barbados’ financial rating – the second in four months. Barbados is listed in tenth place as one of the world’s most heavily indebted countries. From a rating of BB+ it has been dropped to BB-.
Monday, November 25, 2013
The Bahamas government should not bend to public pressure over value-added tax (VAT) ...says Bahamian Attorney, Wayne Munroe
Munroe: Govt should push ahead with VAT
By TANEKA THOMPSON
Guardian Senior Reporter
Nassau, The Bahamas -
Attorney Wayne Munroe said the government should not bend to public pressure over value-added tax (VAT).
The Christie administration has been criticized for not yet releasing the VAT legislation and regulations with the proposed implementation date eight months away. The government’s VAT public education program has also come under fire.
However, Munroe said these issues do not mean the government should delay or abandon the tax.
“They just need to get it done, all this nonsense about educating the public about tax, [were] any of us educated about the business license or real property tax or customs duties?
“So [why] suddenly the great need to educate us over VAT? The people who have to collect it, pay it and administer the system must be told and must make themselves aware of what they need to know and that’s it.”
Munroe also suggested that it might be strategic for the government to delay the release of the VAT legislation and regulations, so people have less time to figure out how to circumvent payment.
“The government’s objective is to maximize revenue collection. If you give me a month with a bill, I will probably be able to show deficiencies that would be able to beneficially impact my client and adversely impact government revenue collection.
“So there is nothing unusual about not circulating a revenue statute in advance and anyone with sense would know that. The less time I have with it, the more time you have before I find out a clever way out of it.
The new VAT regime proposed by the government would allow the state to impose widespread penalties on those who fail to comply with the new act and its regulations, including heavy fines, shutting businesses down, publicly naming and shaming, the seizure of goods and the auctioning off of assets and even jail time.
The new regime proposes to allow the Central Revenue Agency (CRA), which the government is setting up to regulate and collect VAT, to demand details of assets from banking institutions, garnish money owed to registrants by others and restrict access to travel for those who owe outstanding taxes.
Under the new tax system, delinquent taxpayers can also be restricted from travel until outstanding taxes are settled.
Munroe questioned the rationale of this provision and said it should not be included in the final draft of the VAT legislation.
“You can’t restrict my movement because I owe the government money, because what does one have to do with the other?
“Does that mean poor people can’t move about? Now, the U.S. for instance can refuse you entry into their country if you owe people money, but that’s because you have no right of entry into the U.S. or any other country other than your own.
“I can’t see them seriously talking about restricting your movement because you owe taxes.”
The government plans to roll out VAT on July 1, 2014 at a rate of 15 percent in the wide majority of cases.
However, Prime Minister Perry Christie has said he reserves the right to delay the implementation date.
VAT is expected to add an additional $200 million in revenue in the first year of implementation, officials estimate.
November 25, 2013
Saturday, November 23, 2013
• Series of measures to advance reforms approved by the
Communist Party Central Committee third plenum
In 1979, a process of socioeconomic transformations designed to unleash the country’s productive forces began. The development model implemented was based on stimulating foreign investment and exports, with excellent results sustained over the years, which allowed it to accumulate a surplus of billions of dollars.
The Chinese economy was also able to maneuver in order to survive the explosion of the international financial bubble in 2008.
However, the Asian giant now has a dream: to double the gross domestic product and per capita income by 2020, comparing these indicators with those attained in 2010 when the country grew by 10.3%. For that, President Xi Jinping has stated that the country must make strategic readjustments to its economic structure and increase efficiency in state supervision mechanisms.
The government aspires to the entire population of 1.3 billion Chinese equitably enjoying the benefits of development and the measures announced by the 18th Communist Party Central Committee in its recent third plenum are directed toward this goal.
"The fundamental objective of the reforms approved is to improve and develop socialism with Chinese characteristics and to move forward with the modernization of the system and the capacities of the country’s government," states a communiqué read in the event’s closing session.
The document places emphasis on the need "to establish an appropriate relationship between the government and the market" in order to grant the latter more decisive participation in the assignation of resources."
According to the official press, the Communist Party of China (CPC) is to create fair, open and transparent market regulations, as well as to improve the mechanism of market prices so that businesses can operate in an independent manner.
At the same time, China is to undertake fiscal reforms, lower the threshold of foreign investment, intensify the development of free trade areas and increase the opening of interior, coastal and border areas, with a view to creating a new kind of relationship between industry and agriculture.
Other measures approved will allow small farmers to enjoy more property over land and production means, establish a sustainable social security system, create new urban-rural relations in order to solve difficulties arising from large waves of internal migration, and increase the population’s standard of living in terms of access to health and education services.
Also announced was a modification of the family planning policy, taking into account demographic changes in the country with the highest number of inhabitants in the world – and the oldest – to satisfy the desire of many families to have more than one child, which has been the established limit.
The communiqué also announced the decision to direct more resources to the army and to promote scientific and ecological development.
But what is the nature of these reforms?
As Cuban analyst Eduardo Regalado, at the International Political Research Center, explained to Granma, given the financial crisis in its principal markets (Europe and the United States), the Chinese leadership has been obliged to reduce its dependency on foreign capital and strengthen the internal market, one of the largest in the world.
Chinese products which, prior to the crisis, sold very well given that they were cheaper, began to be prejudiced by the competition of European and U.S. products (in other words, from the same countries to which they sold them). At the same time, Chinese acquisitive power has increased and this raises the question of why sell to others if the same goods can be purchased in China.
For Regalado, these adjustment measures seek to further raise the population’s standard of living and to close the gap in development between rural and urban areas. They would also provide a solution to the country’s internal difficulties, which have occurred as a consequence of development itself, such as environmental contamination, migration from rural areas to cities, among others.
Moreover, an important transformation within the projections of Chinese leaders is to transition from a rapid growth model - with the country growing as more factories open - to a model of intensive growth, in which science and technology play a significant role in production processes, a model which, at the same time, is to address ecological issues and depends less on external markets.
November 22, 2013
Thursday, November 21, 2013
Yes, The Bahamas is in a serious debt position ...but the present government has a nerve to ask the Bahamian people for more tax money ...to support the continuation of the manner in which our past taxes have been wasted
Government Must Be Held Accountable For Public Spending
Tribune 242 Editorial
Nassau, The Bahamas:
SINCE THIS government has come on the scene, it has stumbled from one sink hole into another. Nothing seems to be going right, because there is no planning, no co-ordination, and, as we have said before, each cabinet minister seems to have his own agenda and his own game plan.
Monday, November 18, 2013
VAT How we got here
A note to Hubert Minnis
By CANDIA DAMES
Guardian News Editor
Nassau, The Bahamas
Amid what appears to be a growing public tide against the July 1, 2014 implementation of value-added tax (VAT), Free National Movement (FNM) Leader Dr. Hubert Minnis has finally released a position on this contentious issue.
It came as pressure grew within his party for the official opposition to make a clear statement on what would be the most dramatic shift in tax policy in decades.
The statement Minnis came up with is stunningly shallow. It lacks intellectual rigor and shows a startling lack of vision and leadership, all of which we desperately need at this stage of our development.
That is surprising in the sense that he should have access to the facts and to sound advice from qualified and knowledgeable people within his own party.
Given how long it took him to release a statement, he should have had adequate time to formulate a more reasoned position that could be taken seriously and add value to the ongoing discussion on tax reform.
But given his record on matters of serious import (for example, multiple positions on gambling), no one should be surprised that his sole approach is to attack the government on its plans without presenting a well thought out contribution to this growing debate with accompanying proposed policy alternatives.
It seems once again that the opposition leader has gauged the direction of the wind and formulated his position based on the mood of the country. But be mindful that his position could shift again with any sudden temperature change or change to the national tone.
Minnis, who 18 months ago sat as a minister of government, called on the current administration to immediately “come clean to the people, and to explain, precisely and clearly what the circumstances are which have prompted this sudden lurch towards the imposition of VAT”.
It is worrying that the official opposition leader does not know the answer to this question.
Minnis is operating as someone who only entered the political arena in May 2012, distancing himself from the actions of the former administration.
He pretends instead to be blind to the fiscal circumstances of the day, but more importantly to the fiscal realities that existed while he was a minister of government, and the decisions taken to address those realities.
While no one should excoriate the FNM leader for setting along his own path and defining his own leadership style, he and his party are saddled with their record in office.
They cannot run from the decisions taken by the FNM administration — the good and the bad ones.
If as opposition leader Minnis does not know what the circumstances are that have prompted this “sudden lurch towards the imposition of VAT”, he might be ignoring easily available facts.
Progressive Liberal Party (PLP) Chairman Bradley Roberts has gone as far as saying Minnis might be suffering a case of memory loss.
“How else [do you] explain his scolding for a debt crisis created by his own party?” Roberts asked.
“Or was Dr. Minnis asleep at the Cabinet table when his government approved, borrowed and spent over $2 billion in five years, running up the national debt and pushing the country into this current fiscal dilemma?”
If Minnis is not sure how we got to where we are, he might find it useful to do a bit of research and examine the facts of the country’s debt levels.
This might jog his memory.
In August 2011 when the international credit rating agency Moody’s downgraded its outlook for the Bahamian economy from stable to negative, it pointed to the significant run up in government debt levels in recent years and the country’s limited growth prospects.
Moody’s noted that debt rose steadily between 2000 and 2008, but over 40 percent of the increase occurred between 2009 and 2011.
Government debt at the end of June 2011 was estimated at $3.5 billion. It has continued to grow. It is projected to be $4.9 billion when the government implements VAT next July.
This is unsustainable. We are in crisis.
Had the Free National Movement been re-elected to office last year, we would have been facing the same urgent need to tackle our debt, and reform our narrow and inefficient tax system.
Before Minnis twists himself into an impossible situation and puts his credibility on the line, perhaps he ought to have a discussion with former Minister of State for Finance Zhivargo Laing, his former Cabinet colleague, who helped engineer fiscal policies under the Ingraham administration.
Laing has not hidden the fact that the FNM had planned to implement VAT within “two to three years” if it had won the election last year.
The PLP administration is seeking to do it at the start of its third year in office.
Laing said more recently, “In office, we certainly looked at implementing it and if returned to office would have given it early consideration. However, we would have also given it broad consideration in the context of the wider reforms to our tax system that we were already undertaking.”
So Minnis’ own party was eyeing what he now calls a “regressive” taxation system. He may wish to examine why his party also thought this regressive tax was the best option.
He now warns that VAT would “seriously impair the already weak, uncompetitive and struggling Bahamian economy and harm and diminish the quality of life of every Bahamian”.
Unlike Minnis, Laing does not run away from the fact that the Ingraham administration piled on the debt.
The pace was dizzying.
Laing noted in a speech to the Rotary Club of Freeport in August that, “A country can borrow to cover its deficits for a long time, for decades and decades.
“It can even do so increasing its debt to GDP ratio to extraordinary levels, above 100 percent, but the price to pay for this is reduced ability to afford products and services (education, infrastructure, technology, etc.) that could lend to a more prosperous, efficient and peaceful state.
“Minimizing deficit spending is good government policy, especially in times of economic growth.”
The former government has been sure to provide a clear explanation that the high level of borrowing was needed in the face of a dramatic downturn in the global economy.
That explanation has been arguable, as the PLP accused the Ingraham administration of taking actions to worsen an already bad situation.
While prime minister, Hubert Ingraham had said often in his last term that without borrowing the government would not have been able to do simple things, like pay the salaries of civil servants.
Minnis ought to know that we are now suffering the fallout of sky-high deficits and annual borrowing.
To be clear, the vast majority of the resolutions to borrow were approved in Parliament by the then opposition led by Perry Christie.
Nobody likes to hear of new taxes, and so VAT and tax reform was not a prominent theme of the 2012 general election campaigns.
Upon coming to office, the PLP itself feigned surprise at the state of public finances. With that excuse in hand, it continued to borrow, saying it needed to do so to deal with the problems it inherited from the Ingraham administration.
“The fiscal accounts are in much worse shape than we had expected as we came into office,” Prime Minister Christie told the House not long after the May 2012 general election.
“In our very short time in office, it has become clear to us that the previous administration has, through its actions and fiscal policies, constrained our room to maneuver.”
In May 2013, the Christie administration brought a resolution to the House of Assembly to borrow $465 million to finance the projected revenue shortfall in the 2013/2014 fiscal year.
This added to the $650 million the new government borrowed in its first year.
Government debt as a percentage of GDP is projected at 56.4 percent at the end of 2013/2014.
Christie advised that much of the money the government borrowed last year was required to cover unpaid financial commitments incurred during the Ingraham administration.
“The legacy of high public deficits and spiraling debt burden that we inherited is brutally onerous: almost one out of every $4 in revenue collected by the government must be allocated to pay the interest charges on the public debt and cover the debt repayment,” he said.
“Had we chosen to ignore the grave structural imbalance in the public finances, the debt would have continued to spin out of control.”
This year, the government will spend an estimated $230 million on debt servicing alone.
While it is true that the PLP claimed to have immediate but unrealistic answers to attack our fiscal and economic woes while on the campaign trail, it is not on its own responsible for the current state of affairs.
It matters not at this juncture who is to blame, however. What is required now is reform to arrest the growing unsustainable debt levels.
As stated by Laing in his address to Rotary, “If you want to punish those who drive up cost through waste or bad decisions, then do that at election time, but know that the cost still has to be paid by the citizens.”
Minnis may wish to read and carefully consider that useful and informative address delivered by Laing.
In the speech titled “VAT and its implications for The Bahamas and the Bahamian economy”, Laing pointed out that the government needs cash and it needs it badly.
“We are in discussions about VAT implementation because there is a glaring reality confronting The Bahamas, which is that its income cannot pay for its operations,” Laing explained.
“It has not done so from The Bahamas became an independent nation. We have run deficits and financed those deficits with borrowings since 1974, when we ran a deficit of some $33 million. Incidentally, we had a surplus of about $3 million the year before that, the last such surplus seen on total budget performance.”
Laing continued, “In the wake of the crippling effects of the global recession of 2008 and the strain it put on the revenue of the government, our deficit spending has reached extraordinary levels, which is unsustainable, especially in light of the modest growth seen both in terms of the world’s economy and our domestic economy so dependent on it.
“The government needs money to pay for its expenses, and it needs money badly. That is why VAT is being discussed with the sense of urgency that it is being discussed today. In 1995 when the issue first arose, it was being discussed as a planning function; today it is a practical issue of money.”
The Nassau Guardian last week reported on the government’s proposed VAT bill and regulations. It is not clear when these will be brought to Parliament.
The debate cannot be vibrant and well informed without the official release of what is being proposed.
Minnis has said the PLP should immediately disclose to the Bahamian people the details of any economic studies and analyses either by domestic or international advisors or agencies that have led the government to this proposed course of action.
Many people are indeed awaiting the release of an economic impact study to show specific projections resulting from the VAT implementation, including the projected cost of living impact.
Financial Secretary John Rolle said last week that the cost of living is expected to rise between five and six percent in the first year. There were no details to show how these figures were arrived at, and there were no projections provided for cost of living increases in subsequent years.
This year is almost ended, and the government will have six months to clearly make its case, to seek to calm frayed public nerves, and cause for a smooth implementation of the new tax system.
That is ambitious.
Anecdotal evidence suggests the government is losing, not gaining support from the public on its push toward the implementation of VAT.
Its marketing of the initiative is on shaky ground, and it is only now just starting its public education campaign.
While there is an urgent imperative to act, it appears that on its current track, the new tax system could be off to a chaotic and undesirable start — a difficult birth, as we opined here previously.
What the government needs now is a more community based VAT campaign and a bit more time to get the message out.
It might be in the interest of everyone to push off the implementation date by a few months. It would allow the business community and consumers to better digest the details of VAT.
And perhaps it would give the opposition leader a bit more time to better understand how we got to where we are.
We hope it would also give the government a little more time to present a tax reform package that has buy-in from the opposition.
On a matter this grave, such a buy-in could only be in the national interest.
Saturday, November 16, 2013
Zhivargo Laing answers five questions on Value Added Tax (VAT) ...and what it means for The Bahamas, Bahamians, and the Islands' economy
VAT and its implication for the Bahamas and the Bahamian economy
by: Zhivargo Laing, Former State Minister of Finance
... ... My talk today will seek to answer five questions, namely:
1. What is V.A.T.?
2. How does it operate?
3. Why is it an issue in The Bahamas at this time?
4. What is likely to happen?
5. What should happen?
What is a V.A.T.?
Briefly, it is a tax on goods and services at each stage of production and distribution. As its name implies, it is a tax on each increase in value as goods and services are produced and distributed.
More specifically, and here I have the European Unionâ s website to thank for what I regard as a succinct set of specifics, a Value Added Tax is:
• Charged on wide range of goods and services, commercial activities;
• A consumption tax because the final consumer ultimately pays the tax; we will get into this a little bit more later;
• Not a charge on businesses, which will become clear as we move along;
• Charged as a percentage of price, which means that the actual tax burden is visible at each stage in the production and distribution chain.
• Collected in pieces, through an invoice credit payback system or by partial payments where taxable persons (i.e., VAT-registered businesses) deduct from the VAT they have collected the amount of tax they have paid to other taxable persons on purchases for their business activities, which make it neutral or places no charge on businesses, as I alluded to earlier.
• Paid to the government by the seller of the goods, who is the â taxable person,â but it is actually paid by the buyer to the seller as part of the price. It is thus an indirect tax.
You would have heard me mention â taxable personâ several, in which case I am referring to any individual, partnership, company or trading entity that supplies taxable goods and services as a business. In many instances, however, if that business has an annual turnover that is less than a certain minimum, a VAT is not levied on its sales, it is VAT exempt.
Generally speaking, there is no VAT charged on exported goods since it is already paid on the inputs of the good for export. However, VAT is paid on imported goods as means of ensuring that they do not have a price advantage over goods produced locally.
The Bahamas, of course, is a predominantly service based economy; not manufacturing based economy. So, if implemented, a VAT would be applied on many services. So the lawyer, doctor, electrician, carpenter, etc. might all be subject to a VAT on their services. Here again though, it is not their businesses that will be ultimately charged if they had to pay a VAT in the course of producing that service, as they would be able to deduct any VAT paid. It is the consumer who would ultimately pay the VAT, just as is the case with a sales tax. Quite naturally, VAT on services can be fraught with complexities, especially in multi-jurisdictions, where place of supply issues arise; but we need not bother with that here.
Typically, there are a range of services that may be exempt from VAT, including financial services, insurance, health services, social services, education, cultural, leasing of property and the sale of property services.
In some jurisdictions, there may be several VAT rates, including a standard rate, a reduced and a zero rate. Zero rates might apply to such things as food, books, childrenâ s clothes, public transport, etc.
Some 130 countries apply a VAT and the rates can range between five percent and 25 percent from country to country. There is no VAT charged in the United States of America but President Obama did propose the implementation of one which was met with fierce opposition from conservative politicians in the U.S. In the Caribbean countries that have a VAT include Barbados (17.5), Guyana (16 percent) Saint Kitts and Nevis (17 percent) and Trinidad and Tobago (15 percent).
Why have so many countries adopted the VAT, why are so many more considering it and why VAT over sales tax? There are a number of reasons, including the fact:
• Governments needed more revenue which was not being supplied by their predominantly income and sales tax systems;
• Governments found that their tax bases needed to be broadened in order to collect greater revenue; and
• Value Added Tax broadens that base while producing a neutral tax for businesses but a self-policing system through the invoice credit payback system that a sales tax could not provide;
Time does not permit me to get into an extensive discussion on the arguments given by some against a VAT. However, briefly stated, they include the following:
• It is complicated to implement, especially in a service based economy; this notwithstanding, it is in most territories in the world and others are seeking to implement;
• It is regressive, as is the sales tax and customs duty, and IT IS;
• Problems for businesses in adapting to VAT that include time, paperwork, difficulty reclaiming funds and issues with how the VAT applies to unique supplies.
Why is VAT being considered today?
It has been known for some time that The Bahamas could not indefinitely fund the State enterprise with its existing tax sources. Our economy is, conservatively speaking, about 70 percent services and 30 percent goods, yet the Government raises about 70 percent of its revenue from 30 percent of the economy. Some 40 percent plus of Government revenue comes from taxing imports into the country, that is goods brought into the country from overseas.
A growing state with increasing cost of operations cannot continue to look to the narrowest segment of its economy to pay for the bulk of the cost. This was combined with the growing recognition that you cannot run deficits indefinitely without at some point paying a high price. Thus the need arose to look for alternative sources of funding. This effort was launched in 1995 when the Government asked the International Monetary Fund to explore the issue with it.
Another consideration was the fact that with the creation of the World Trade Organization, to which every Caribbean country belonged having joined at the time of the creation of the organization in 1995, would eventually mean The Bahamas had to look at reducing its dependence on customs duty for revenue if it hoped to belong to that international trading system on day. Talks of a Free Trade Area of the Americas to be negotiated also played a role in this consideration.
Study launched into new tax opportunities, namely sales tax and VAT because of the challenge of imposing income tax in our offshore finance environment that was extremely sensitive to such issues.
Many years of inquiry by IMF and IDB and Ministry of Finance has taken place but a concrete written first proposal was developed in 2008/9. This technical proposal is the basis of the existing proposal.
It is a live issue today because in the wake of the Great Recession and its impact on The Bahamasâ fiscal position, the imperative for increased revenue is even greater.
The Government needs cash and it needs it badly. The proposition on the table is to produce a VAT by July 2014, next year.
What is likely to happen?
One of two things is likely to happen: (i) delay of the proposed implementation date and uncertainty as to a future date; or (ii) implementation within proposal date with numerous headaches in doing so. We could all be surprised and have a painless implementation of the VAT.
What Should Happen?
The Value Added Tax proposition on the table today is, for the most part, a technocratic proposal. It does not have the benefit of broad academic consideration or input.
It also lacks commercial consideration, as serious study, thought and consideration by the entrepreneurial community of The Bahamas, including the professional supportive communities of accountants, lawyers, economists and financial experts is lacking.
The proposal does not have, as far as I can assess, a current economic impact study to form the basis of any genuine analysis of revenue need medium to long term or spending and fiscal targets medium to long term.
Such a study would also have concluded what, for the medium to the long term, should be the appropriate tax system for The Bahamas, meaning that we should determine what taxes should exist in the modern Bahamas and which should be eliminated. Doing this would mean that we have a vision for the economic and commercial life of The Bahamas and what fiscal system would best support the realization of that vision.
It certainly has not yet been given an organized public education process and deliberation. This means that the community it remains largely an uncertainty to most of the public.
The proposal also lacks important details, especially as it relates to its implementation, though I do believe that the rudiments for such details were emerging as a consequence of certain legislative, administrative and technological reforms undertaken over the last six years and some are alluded to in the paper itself.
Tourism and financial services, along with their ancillary supportive services, account for more than 60 percent of our economy. Applying a VAT to these internationally competitive sectors with their major impact on our economy must be approached with caution. It is not clear whether the proposal on the table has carefully analyzed this situation and therefore has accounted for the implications of the VAT to them and the economy as a whole.
What we know about the VAT proposal from a white paper on tax reform issued on 13 February of this year include the following:
The Government's objectives are:
• To secure an adequate revenue base in support of modern governance;
• To establish a tax structure that promotes economic efficiency and stronger economic growth; and
• To make the tax system more equitable.
These are laudable objectives but the implementation of a VAT alone, even when combined with a congruent reduction in customs duty will not achieve these objectives. Reform of the tax system itself that results in a structure supportive of these objectives is necessary.
The aim is to introduce the VAT on 1 July 2014 at a rate of 15 percent.
The Government should rethink this.
Firstly, I think that the date is not doable, certainly not to achieve the best results. However, more importantly, I believe that we should step back and see the tax reform exercise more fundamentally and profoundly.
Many of the considerations that drove us to look at our tax system with jaundiced eyes have faded. In particular, our offshore finance centre has seen revolutionary changes in the international regulatory environment in which it operates.
The timidity that it once had to issues of no or low taxes and even secrecy has matured in some ways. We can, as a mature nation, take account of our needs as a state and the cost of financing those needs, and consider our vision for a dynamic, robust and growing economy and the commercial opportunities that exist to realize that vision, and develop a tax structure that suits us.
In other words, rather than be driven, lets drive our reform to do for us what we wish to do for ourselves within the context of the global environment in which we exist and are likely to exist. We should aim for reforms and should do them sooner rather than later but let us do our best and most considered reforms, so that we can look back at them and be proud of what we did for us.
There will be a reducing of both import duties and excise tax rates and elimination of the business license tax (but require a minimal annual business license fee) and the elimination of hotel occupancy taxes (which will be substituted with VAT). As a part of a considered tax reform process, these could have merits but cannot be fully known without that more complete picture in place.
There will be a limit to become a VAT Registrant of $50,000 turnover per annum, meaning that about 3,798 businesses will qualify as VAT Registrants. At this rate, the revenue potential to the Government will be around $200 million. If we return to pre-2008 GFS deficits, this new revenue could totally eliminate our deficit, if the government enjoys levels of growth seen in that period and controls increase in spending, which, I admit is a tall order for governments. If we maintain post-2008 GFS deficits, this new revenue will still mean GFS deficits of $300 - $400 million, if all else remains equal; and that would not be sustainable or acceptable.
In keeping with what happens in other jurisdictions, it is proposed that financial services, agriculture and fisheries, social& community services, health and education and leases on land and residential buildings will all be tax exempt sectors. Nothing unusual there!
There are other details in the paper about the administrative procedures proposed for the VAT, but I do not have the time to comment on them.
Any consideration of new tax implementation in The Bahamas has to take account to legal and economic privileges enjoyed by Freeport through the Hawksbill Creek Agreement. Let me say here that I have looked at the issue and while I do have some initial thoughts, I am not prepared to draw any specific conclusions at this time. However, I will say that just as it ought to be the case with all taxes imposed by the Government, the imposition of a VAT must not proceed without definitively considering its legality and appropriateness for Freeport in light of The Hawksbill Creek Agreement. No one, least of all the economic hard pressed businesses and people of Freeport, and Grand Bahama, need a legal battle or economic issue that pushes their misfortunes further. I will speak to this issue following upon my further study of this matter, however.
We are discussion VAT implementation because there is a glaring reality confronting The Bahamas, which is that its income cannot pay for its operations. It has not done so from The Bahamas became an independent nation. We have run deficits and financed those deficits with borrowings since 1974, when we ran a deficit of some $33 million. Incidentally, we had a surplus of about $3 million the year before that, the last such surplus seen on total budget performance.
In the wake of the crippling effects of the global recession of 2008 and the strain it put on the revenue of the government, our deficit spending has reached extraordinary levels, which is unsustainable, especially in light of the modest growth seen both in terms of the worldâ s economy and our domestic economy so dependent on it. The Government needs money to pay for its expenses and it needs money badly. That is why VAT is being discussed with the sense of urgency that it is being discussed today. In 1995 when the issue first arose, it was being discussed as a planning function; today is itâ s a practical issue of money.
Bahamians must embrace the realities of our present moment and those that relate to our moments going forward. A country is community to which all citizens and residents belong. There is a cost to operating a country. If it is operated efficiently, the cost is not as high as when it is operated inefficiently. However, operated, the cost exists and it must be paid by its citizens through taxes. If the governors drive up the cost through decisions regarded as good or bad, the cost exists and must be paid for by the citizens. If you want to punish those who drive up cost through waste or bad decisions, then do that at election time but know that the cost still has to be paid by the citizens.
A country can borrow to cover its deficits for a long time, for decades and decades. It can even do so increasing its debt to GDP ratio to extraordinary levels, above 100 percent, but the price to pay for this is reduced ability to afford products and services (education, infrastructure, technology, etc.) that could lend to a more prosperous, efficient and peaceful state. Minimizing deficit spending is good government policy, especially in times of economic growth.
Our present tax system is not serving our needs well. It needs to be reformed. We need to eliminate some taxes, to introduce some new taxes and ensure that that at the end of the exercise, we have a tax system that meets the revenue needs of an efficient Bahamian state and supports the ability of the commercial sector of that state to do what it does best, create, grow and conduct business resulting in good jobs and good income. A VAT has the potential to fit into this kind of a scenario.
In office, we certainly looked at implementing it and if returned to office would have given it early consideration. However, we would have also given it broad consideration in the context of the wider reforms to our tax system that we were already undertaking. Consistent with this was changes to our business license regime, real property tax reform efforts, the proposed creation of the Tax Administration Department, reforms to the Tax Administration and Audit Act, a new framework for support small and medium size business through SMEDA, the modernization of customs laws and department, etc. If we step back and approach this issue with the maturity, intelligence and integrity that it deserves, we could do wonders to help The Bahamas realize its greater potential."
The Freeport News
Thursday, November 14, 2013
Nassau, The Bahamas:
November 14, 2013
Bahamas Blog International
Wednesday, November 13, 2013
...there is an element of the Bahamian society that views the Turks and Caicos Islands (TCI) value-added tax (VAT) experience as one that could provide a lesson to The Bahamas' context
TCI rejected ‘rushed’ VAT proposal
By CANDIA DAMES
Guardian News Editor
Nassau, The Bahamas
Fierce opposition ahead of the planned April 1, 2013 implementation of value-added tax (VAT) in the Turks and Caicos Islands (TCI) led to the United Kingdom pulling back from that position.
Professor Gilbert Morris, who chairs the Turks and Caicos Resort Owners Economic Council, told National Review that TCI residents were primarily concerned with the “rushed” manner in which VAT would have been implemented.
“We never said no to VAT,” explained Morris, a Bahamian.
“We simply said, look there has not been enough time; you’re rushing it through. If you look across the Caribbean, the record has not been very good.
“The government collects most of the money it says during the first three years, but then the pie begins to shrink and then the government raises the rate. That has been the Caribbean experience generally with the exception of the Dominican Republic.”
Both the TCI government and opposition had opposed VAT. In The Bahamas, there is an element of society that views the TCI experience as one that could provide a lesson to our country’s context.
But there is an important difference: It is the Bahamas government, not some foreign power seeking to impose the new tax regime.
Opposition Leader Dr. Hubert Minnis has called on the government to put off the implementation of VAT, saying it was being rushed.
Recently, the government softened its tone on the issue, with Prime Minister and Minister of Finance Perry Christie saying the July 1, 2014 implementation date is not set in stone.
But the government is clear that its plan is to introduce VAT.
In the Turks and Caicos Islands where Premier Rufus Ewing had campaigned against VAT, the decision to abandon the VAT effort was announced in a letter by Mark Simmonds, the UK’s Minister for the Overseas Territories, in February.
Simmonds wrote: “It remains Her Majesty’s Government’s (HMG) view that VAT would provide a more stable, fairer and broader based system of revenue for TCI than that which is currently in place.
“The government of TCI has a responsibility to ensure sound finances in the territory. This includes constraining expenditure within the legally binding fiscal framework which is now in place and being able to refinance its debts in 2016 without a further UK government loan guarantee.
“The TCI government will face more difficult choices to ensure stable and sustainable revenues and expenditures in the absence of VAT.
“HMG is clear that we will not accept a return to the dire financial situation in TCI which prevailed before the interim administration.”
The Bahamas is fighting its own dire financial situation, having piled on debt in recent years at a dizzying rate.
Government debt as at June 30, 2014 is projected to be $4.9 billion, compared to $2.4 billion as at July 2007.
Morris believes the lead-up to the planned implementation of VAT in The Bahamas does not leave enough time for it to be done properly.
“The main problem with VAT for countries where there is a tradition of inefficient public service management is mission creep,” explained Morris, who served as an observer during the implementation of VAT in several African nations.
“You start off at one point with one set of costs and because you didn’t pay attention, another long-term set of costs or hidden costs or unforeseen costs, you end up having to absorb those costs and increase the size of what you intended to do, so the mission creeps up on you. So this is one of the problems.”
The TCI government has put in place a Blue Ribbon Commission on future taxation. Morris is a member of the commission.
“We have looked at the short-term issues for the government and tried to look at taxes that in the short term could put the government in an effective position,” he said.
Looking at the Bahamian context, Morris added, “The Bahamian people will forgive any government that goes after growth and prosperity for the Bahamian people and makes mistakes.
“What will not be forgiven is a government that overburdens the Bahamian people with taxation, drawn from a wild variety of half studies and statements and impressions and whatever have you, cookie cutter programs for other countries, to force us to become like every other Caribbean country when even in the condition that we’re in, we’re ahead of them.”
Morris said he has experience with the proper implementation of VAT and a bad implementation of VAT on a national scale — a country smaller than The Bahamas and a country 10, 15 times the size of The Bahamas.
“And in each case where it was implemented well, there was a three- to five-year gestation period,” he explained.
“They picked a small area of industry. They tested it first to see how it worked. They added another area, added another area, did a review after one year, looked at that, talked to the public.
“People got to know about it, and all of a sudden those businesses that were a part of a test and review period they became the central operators, the central businesses that could help the government explain.
“So, rather than depending on some paid person to come in who has a vested interest, in places where it has been done well, they have rolled it out and rolled it out in a small corner of the economy…do it for six months, nine months.
“Clean it up then try it again for three months; do a review then those businesses with the experience join the public education process, and people could look at their own people explaining how it would work for them.”
Morris said what the Bahamas government ought to be doing is growing the economic pie rather than taking a higher proportion of the same economic pie.
“We need to figure out what it takes to run The Bahamas, find the taxes that are on the books, make everybody pay the existing taxes, and then we need to get the minister of finance, the minister of foreign affairs, BAIC (Bahamas Agricultural and Industrial Corporation), all these groups, the development bank, get them out of the country on the road drumming up business to expand the economic pie on the basis of a clear and precise 10-year development plan,” he said.
In The Bahamas, there is an estimated $500 million outstanding in property taxes alone.
Morris noted that VAT is infinitely more complex than property taxes.
Referring to the need for greater efforts at economic growth, Morris said, “That’s what governments should be talking about now, not additional taxes, not joining the Word Trade Organization.”
November 11, 2013
Monday, November 11, 2013
The Tax Coalition in The Bahamas praises the Bahamian Prime Minister for being open to pushing back Value-Added Tax’s (VAT) implementation day in The Islands
Tax Coalition Chiefs Praise Pm’S ‘Fantastic’ Vat Remarks
By NEIL HARTNELL
Nassau, The Bahamas
Co-chairs for the private sector’s Tax Coalition yesterday praised indications that the Prime Minister was open to pushing back Value-Added Tax’s (VAT) implementation day as “fantastic”, warning it was “paramount” that the economy be protected.
Tuesday, November 5, 2013
The Bahamas Gaming Board Chairman, Dr. Andre Rollins says that the Bahamian government should tax web shops to boost its revenue ...and introduce value added tax (VAT) at a lower rate than the proposed 15 percent
PLP MP hits out on VAT
Rollins also has Gaming Bill concerns
Guardian Senior Reporter
Nassau, The Bahamas
The government should tax web shops to boost its revenue and introduce value added tax (VAT) at a lower rate than the proposed 15 percent, Gaming Board Chairman Dr. Andre Rollins said yesterday.
The Fort Charlotte MP also weighed in on the controversial Gaming Bill and told The Nassau Guardian that “Believe in Bahamians” needs to be more than an election slogan.
Rollins said debate on the modernization of the country’s gaming industry should not be focused on expanding the sector to benefit foreigners while ignoring Bahamian participation.
“While VAT is such a hot topic in our country we have to look at this as an opportunity to at least reduce the amount of apprehension or to whatever extent we can appease the public that is concerned now more than ever about being overtaxed,” he told The Nassau Guardian.
Rollins said taxing web shops would give the government a revenue injection, allowing VAT to be phased in at a low rate over a few years.
“That would allow the transition into VAT, I believe, to be a lot more palatable or manageable for the average Bahamian,” he said.
“We know that VAT is still not considered to be a progressive form of taxation. It’s a regressive tax, maybe not as regressive as a customs duty based regime, but it’s regressive nonetheless.
“If we are in fact in tune with the concerns of the Bahamian people we would know that they are not too pleased with this whole idea of being taxed more, particularly at a time when the economy is still not growing to the extent that we can absorb all of the unemployment.”
The government plans to institute a 15 percent VAT on July 1, 2014 to help close the gap between revenue and expenditure.
In November, Prime Minister Perry Christie told Parliament the government could get $15 million to $20 million in annual taxes if web shops were properly regulated.
The controversial Gaming Bill was tabled in the House of Assembly last month.
The bill would allow casinos to offer mobile and Internet gaming, while preventing web shops from legally doing so, and maintains the status quo, which prevents Bahamians from legal gambling.
Rollins said it “makes no sense” to modernize the gaming industry for foreigners while leaving Bahamians out.
“We cannot as the government fuel a perception that we are enacting legislation that is geared toward bringing modernization to our country but which simultaneously leaves Bahamians behind,” Rollins said.
“Believing in Bahamians must be more than a convenient political slogan. In opposition you have the luxury of being elected on your promises. As the government, however, you are judged by your actions. This debate is about much more than gaming; it is about maintaining our philosophical credibility as a government that says it believes in Bahamians.”
Rollins said if the issue of Bahamians gambling is not dealt with during the debate on the Gaming Bill, he doubts it would happen during this term.
“I don’t expect for Bahamians to believe that if we don’t discuss the importance of Bahamians participating in the industry, whether as owners or patrons, that if we don’t do it now it’s likely for us to do it later,” he said. “Later when, after the next election?
“We cannot continue to leave the interests of Bahamians behind.”
In January, a majority of people who voted in a referendum on gambling voted no to the regularization and taxation of web shops. The government has said it will abide by the outcome of that vote.
Debate on the Gaming Bill is expected to begin in the House of Assembly on Wednesday.
November 04, 2013
Saturday, November 2, 2013
30 years ago? What similarities exist with the current U.S. position?
WHAT could lead the most powerful country in the world to invade a nation of only 110,000 inhabitants? Three decades ago, some 7,000 U.S. marines and parachutists occupied Grenada, in an operation labeled Urgent Fury. The capital of this Caribbean island was bombarded by aircraft, helicopters and warships.
|Maurice Bishop in 1980 |
|Some 7,000 U.S. marines and|
parachutists invaded Grenada
October 25, 1983