Vat Move 'A Recipe For Recession'
By AVA TURNQUEST
Tribune Staff Reporter
aturnquest@tribunemedia.net
Nassau, The BahamasTHE implementation of Value-Added Tax without a reduction in current revenue measures is a recipe for recession, former finance minister and economist Sir William Allen said yesterday.
Sir
William said that a 2014 roll out of the new tax system was “not
doable”, and likely to result in disappointment and frustration for both
the government and the taxpayers.
He maintained that the economy was still “too weak” for an increase of the minimum wage as a way to offset the “pain” of VAT.
Sir
William said: “Economic performance is very weak, the economy has not
yet recovered from the 2007/2008 period. It is still very weak and the
recovery is very anaemic. An increase to minimum wage will be contrary
to improvement in the economy, it would work against the improvement of
the economy. You have to consider the timing.”
He added: “I agree that VAT will not be without pain, because the very nature of VAT, it’s going to impact everybody in society.
The
Government is proposing to implement VAT on July 1, 2014, at a rate of
15 per cent, with the hotel industry to be subject to a lower 10 per
cent rate. The Government’s White Paper on tax reform proposes to exempt
those companies with an annual turnover of $50,000 or less from having
to pay VAT.
Sir
William called on the government to clarify whether or not it intended
to reduce current taxes to make room in the economy for VAT, adding that
whether or not officials could strike a balance between existing taxes
and the new structure would ultimately determine the strategy’s success.
“The
public is not expecting to pay the same level of custom’s duties along
with everything. If that is so, there is gonna be hell to pay in this
economy.”
“They’re not speaking to that clearly enough.”
Another
worrisome component of the government’s VAT initiative is it’s
timeline, according to Sir William, who posited that an ideal roll out
would be three to five years.
He
said: “My concern with the VAT is that they are seeking to put in place
much too short a schedule. I don’t think that sufficient time has been
given to putting it in place – to put into effect a VAT system by July
1, 2014, with the best of intentions, that is not doable in my view.”
Sir
William said: “It is not doable, or if it is done it will be very
inefficient and it’s going to lead to considerable disappointment on
(government’s part) in terms of revenue that they collect and a lot of
frustration on the part of the taxpayers.”
While
Sir William noted that it was obvious the government was hard pressed
to close the some three per cent gap between GDP revenue and
expenditure, he maintained that it was highly improbable that the
government could recoup that figure within the 2014/2015 fiscal year.
Sir
William said: “You know what they do when you can tell something is
wrong in an economy– if you look at the buildings or parks and they’re
not maintained and if you listen to people and they’re not being paid -
that’s how you know something is wrong, that’s an indication of fiscal
pressure, money pressure.”
“And
in light of that it’s going to be difficult to see how they are going
to reduce their expenditure. There is going to be pressure for further
expenditure.”
Pointing
to the cost of the government’s anti-crime initiatives, which he
commended, Sir William said: “I see nothing that permits them to reduce
their expenditure, I don’t see any possibility on the horizon that
permits for that.”
Sir
William said: “I think there’s a very valid rationale for putting [VAT]
in place, the government is running a capital deficit and a current
account deficit. The current account deficit is the most worrisome
because that means that your revenue is not covering your ordinary
expenses.
He
said: “In the context of a household, if you have to borrow money to
pay your rent you’re in trouble. If you have to borrow money to buy food
you’re in trouble - that’s a current account expense.”
He
added: “That’s a big number, if you consider a GDP of say $9 billion
dollars, so that three per cent you’re talking about $270 million. You
have to do something about that, it’s not a way that you can continue to
operate for a long period of time and in fact we’ve been running like
that for much too long.”
Nearly
eight months after the release of the Government’s White Paper on Tax
Reform, the former finance said he was still unimpressed with the PLP
administration’s reform strategy.
Back
in July, Tribune Business reported that Sir William was “doubtful” that
the Government will hit the target timelines for its two key fiscal
objectives – the introduction of Value-Added Tax (VAT) and eliminating
the fiscal deficit by the 2015-2016 Budget year.
Sir Allen said that while he would prefer an income tax, the Bahamas has already sold itself as a “tax haven”.
“We
boast,” he said, “all our marketing has been ‘no income tax’, and there
is a certain fear in certain quarters that once you establish an income
tax it’s only a matter of time before it impacts [offshore finance].
Sir
William said: “We seek as much as we can to exclude the offshore sector
from this tax on the assumption that one of the reasons why they come
here is that they come to avoid income tax. One can argue whether that
continues to be a valid position, but a lot has changed in the Bahamas.”
October 04, 2013
