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

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.

Mission creep

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