Friday, August 1, 2014

Do we really need value-added tax (VAT) in The Bahamas

Do we really need VAT?

For most persons in the Bahamas, the talk of value-added tax (VAT) has been more of a nightmare than a pleasant discussion. Questions continue to surface because there is a distrust of the proponents for VAT. Do we really need VAT? Can we not implement another process which addresses the need for revenue generation without imposing a VAT? What about curbing expenditure and taking meaningful steps to assure the electorate that expense reduction is a part of the tax reform being touted.

Having done a study on the taxation system of the Cayman Islands, I am able to say that the indirect taxation model that is employed both here in The Bahamas and in the Cayman Islands has been working and is workable for the future. With this premise, in order to effectively eradicate deficit spending, we need revenue but we also need expense reduction. Expense reduction is the part of the equation that many seem to forget and/or wish to ignore. Revenue generation and the search to find ways to increase this part of the equation is not sufficient if we are going to address our financial challenges as a country. If it is that we have a revenue generation problem then finding creative but sustainable ways of generating revenue is the first step to the solution.

To assume that international agencies are the only solution providers when it comes to running the finances of our country is nonsensical at best and depressing at worst. Moreover, having seen the decline of the Jamaican economy over a period of 30 years with all of the involvement of the international agencies suggests to me that the solution for fixing our country’s problems cannot come from the outside but must come from within. After all, it is us who will bear the brunt of the financial realities. Moreover, it is my generation and the generation after me who will suffer from any adverse consequences with respect to VAT.

We must be adamant in ensuring that we do not idly allow this to be forced on us because some external groups says so. The Turks and Caicos Islands rejected VAT. The Cayman Islands does not have VAT. Why must the Bahamas adopt VAT? We can do better than that.

When I did my master’s degree in finance and studied taxation models, I realized very quickly that the indirect taxation model that we employ can work, contrary to what many would have us to believe. The fact is that Bahamians do not want VAT. Let’s just stop pretending that it is ok. From the feedback that is in the public domain, there is a dominant view that VAT is being forced upon Bahamians.

Let’s be more serious and efficient in collecting the taxes that we now have outstanding before looking at adding more. How many businesses are in arrears that should pay? This has to happen. Why should the masses be penalized because of the few? It is unfair to the majority of the Bahamian people to be saddled with VAT when there are workable alternatives which technocrats refuse to review or accept because of the international agenda being driven by them. The sovereignty of the Bahamas is at stake when the few impose their views on the many with far reaching detrimental effects.

If all Bahamians were to be honest when coming through Customs and paid their duties so that as a young sovereign nation we could have revenue to take care of our expenses, then we would probably not be at this point, watching VAT debated in parliament. While the government needs to do its part in collecting taxes, we as citizens have a responsibility to do our part and be honest and pay our fair share in order to build better schools, roads, parks and hospitals.

If 200,000 Bahamians travel to Florida or anywhere overseas annually and currently enjoy $600 in duty exemption, I am sure they would give this up to contribute an additional $120 million in revenue to the government. Further, if we looked at our work permit system as a source of revenue generation, which would also allow for an increase in foreign workers similar to Cayman, Bermuda or the British Virgin Islands, the potential for substantial annual revenues would be tremendous and the spin-offs in spending in the community would be beneficial to Bahamians. What percentage increase at the port could the Bahamian population afford that would provide the revenue needed while eliminating the call for VAT?

Sustainability is a key component and so this brings me to expenditure control. There has to be a reduction policy on expenditure in the public sector if we are going to be serious about eliminating our deficit. The Bahamas needs to have balanced budgets and we need to move in the direction of having surpluses. Is this doable?

The same level of aggressiveness with revenue generation must be exercised on expense reduction. It is no longer OK to do what is politically expedient or what is internationally directed when there are realistic alternatives to implementing VAT. Have we commissioned our economics professors at the College of the Bahamas to do a study that would support us using an alternative? If we believe in Bahamians we must start listening to what the Bahamian people are saying. Do not assume for one minute that they are stupid. With the addition of VAT there will be a need to add government services. What is the cost associated with this and doesn’t that add to the deficit? Could this expenditure cost an additional $30 to $40 million in Social Services costs?

VAT will add to the cost of living and this is a fact. Wouldn’t an alternative plan that has a lesser effect on cost of living be better for all of us?

Who will listen to the ordinary Bahamian? I know we all like the pie in the sky talk so when one hears of oil exploration in the Bahamas or the potential for salt production in Long Island or an increase in aragonite production for revenue, that too sounds good. Truth be told, if it were that easy it would have been done a long time ago. I think the sobering reality is that we must start with proper studies being done by Bahamians which include and take into account what the majority of Bahamians want. If it is that they want VAT, then VAT it shall be. As for me, I can say I don’t support it nor do I accept that it is the only logical way forward.

• John Carey served as a member of Parliament from 2002-2007 and can be reached at:

August 01, 2014