Saturday, March 22, 2014

We don’t like Value Added Tax (VAT) in The Bahamas

'We Don't Want V.A.T., Even At 1/100 Of 1%'

Tribune Business Editor

Super Value’s owner yesterday said Bahamians “don’t want VAT under any circumstances, even at 1/100th of 1 per cent”, and called for the Government to instead implement a wide-ranging fiscal reform package that included a sales tax.

Rupert Roberts told Tribune Business that the private sector and consumer’s main complaint was not the level of taxation, but the “complex and evil system” that VAT will introduce should it be implemented in the Bahamas.

His comments indicate that Prime Minister Perry Christie’s conciliatory Mid-Year Budget address, in which he pledged that VAT would be implemented at a lower rate than the initially proposed 15 per cent, has failed to win over the tax’s greatest opponents.

It also contradicts Ryan Pinder, minister of financial services, who in his MId-Year Budget contribution suggested that a 10 per cent VAT, which was introduced on New Year’s Day 2015, would be acceptable to many in the business community based on the feedback he has received.

Mr Roberts’s comments suggest, though, that the Government is unlikely to win over many in the business conmmunity and wider Bahamian public who seem opposed to VAT in any form.

Responding to the Prime Minister’s address last week, in which he indicated that the Government would also likely push back VAT’s planned July 1 implementation date, Mr Roberts said such a move was inevitable.

“The poor merchant doesn’t know how it works, so it has to be pushed back,” the Super Value president told Tribune Business.

Then, suggesting the Government had misread why many Bahamians were so opposed to VAT, he added: “The merchants and public are not complaining about the rate; they’re complaining about the complx and evil system of VAT.

“If VAT was 1/10th of 1 per cent, they don’t want it. We don’t want VAT under any circumstances, even at 1/100th of 1 per cent. VAT is a system that nobody in the Bahamas wants execpt the politicians.”

This assertion says Bahamians, both private sector and consumer, are opposed to the VAT concept, rather than the substance or details. Yet VAT, which taxes the value added at each stage of the production chain, or some form of general consumption tax has been implemented in more than 140 countries.

But one senior banking industry source, speaking on condition of anonymity, told Tribune Business that the pledged lower VAT rate was merely a tactic to “get the camel’s nose under the tent”.

They suggested the cut to the proposed 15 per cent rate was a shrewd negotiating tactic by the Government that was designed to pacify the VAT opposition.

Once VAT was implemented at a lower rate, the banker suggested it was only a matter of time - possibly just a few years - before the Government sought to raise it, as has happened in many other countries. They also predicted that the Bahamas would likely follow Barbados in introducing some form of income tax, too.

While welcoming the Government’s decision to lower the 15 per cent rate, Mr Roberts argued: “The country doesn’t want VAT, and the country doesn’t realise that VAT allows the Government millions and millions of dollars up front.

“We have no VAT now, and the minute we have it, merchants will pay it when we import products. It may be six months before we sell that merchandise, but the Government collects its money right away. They have millions and millions of cash flow, and I might not even sell it after six months if it becomes spoiled or someone steals it.”

Philip Beneby, president of the Retail Grocers Association, yesterday told Tribune Business that the food retail/wholesale sector was still unsure whether VAT was “the right fit” for it and the Bahamas.

He argued that it was “not as fair to the grocery trade as it is to other industries because we cannot reclaim 100 per cent of our inputs”.

Breadbasket items, which typically are price controlled and account for 75-80 per cent of food store inventories, will be treated as ‘exempt’ under the proposed VAT legislation. Vendors of ‘exempt’ items cannot claim back the VAT they pay on these products’ inputs, meaning supermarket operators will only be able to recover 20-25 per cent of their tax payments.

As previously reported in Tribune Business, food store operators fear this will result in reduced profit margins and increased costs, resulting in job losses and outlet closures.

Mr Beneby said the Government had shown no sign to-date of moving from this position, adding: “It’s not fair to us in its present form. I don’t think our industry is treated in that fashion anywhere else. The grocery trade and retailers are carrying some of the burden for Government and it’s not fair to us.”

Mr Roberts reiterated: ‘We just don’t want the system of VAT. It’s not the concept of taxation; we’re willing and able to pay the taxes for them in a system we like.

“If the Government came to the business community and said look, we have a deficit, we’re cutting our expenditure, and we want you to help us collect the money.......... if they were to package it, we’d have been collecting a sales tax for them, at 15 per cent.

“We don’t like VAT. I hope the Government realises that’s the problem. We like the Government; we don’t like the system. It doesn’t work well elsewhere, so why should it work here?”

March 20, 2014