Monday, February 24, 2014

The Barbados value-added tax (VAT) experience debated in The Bahamas

Govt urged to learn from Barbados on VAT

Guardian Senior Reporter
Nassau, The Bahamas

Days after Governor of the Central Bank of Barbados Dr. Delisle Worrell said value-added tax (VAT) has hurt that island’s tourism industry, Free National Movement (FNM) Chairman Darron Cash said the criticism should give The Bahamas government another reason to delay VAT’s introduction.

Last week, Worrell told The Nassau Guardian that he has seen “declining enthusiasm” for VAT in Barbados, adding that the tax is “anti-tourism”.

Worrell also said Barbados’ VAT system is a “mess”.

“The recent comments from the governor of the Central Bank of Barbados provide a great example of good advice from a credible source,” Cash said.

“Dr. Delisle Worrell’s statements that in his country VAT has emerged as the anti-tourism tax should give the Christie government reason to stop, review and cancel their July 1 VAT implementation date.

“If the prime minister and his dutiful junior minister (Michael Halkitis) were listening they would have already come to the conclusion that there is an overwhelming strong public view that this administration has not thought [out] its proposed VAT program sufficiently.”

When asked for his take on Worrell’s criticism, Halkitis said several Barbadian government officials see the tax as beneficial.

“For example, I had the opportunity to speak with the Minister of Finance of Barbados Christopher Sinckler at a meeting in Trinidad last week,” Halkitis said.

“He is of the opinion that it is a suitable tax, but that we should be extra vigilant in collections and not allow arrears to build up from businesses that do not pay. Otherwise, he felt that the tax has served them well.

“Former Prime Minister of Barbados and Minister of Finance Owen Arthur is also a supporter of VAT as a tax.”

Halkitis stressed that the government has reviewed a number of studies that estimate VAT’s impact on economic growth.

He said these studies forecast greater productivity and growth if the government moves away from a system of high customs duties and toward a broad-based consumption tax such as VAT.

“Another warning we have received is to avoid a system that has too many different rates and exemptions,” Halkitis said.

“This leads to greater administration costs and could possibly lead to the mess Dr. Worrell is referring to,” he said.

Halkitis said The Bahamas can “avoid the mistakes made by earlier adopters” of VAT.

He said the government’s main concern is that delayed action in getting its fiscal house in order would have a negative impact on the economy.

During an interview with The Nassau Guardian, Worrell said his views on the tax are “very radical”.

“I think VAT is an inappropriate tax for a tourism-based economy,” he said.

“The rationale for VAT is that it is an export promoting tax, because if you are exporting physical goods (VAT is not charged on) those goods, but the producers are able to claim refunds/rebates on their inputs.

“ . . .So there’s a bias in the VAT in favor of export industries; that is if you are exporting physical things that are consumed outside, but not if you are exporting tourism, because the tourists come to you to consume.

“So VAT is an anti-tourism tax if you are a tourism producer because it makes your tourism more expensive than the people who don’t charge VAT, and that’s why all tourism countries who apply VAT have to apply it at a lower rate. A simple sales tax would be much better.”

February 24, 2014