Why VAT and When?
By ARINTHIA S. KOMOLAFE Nassau, The Bahamas
Consultation on VAT
A quick review of the draft VAT Bill will confirm what a number of Bahamians had known in relation to the initial discussions between the government and various industry groupings.
This observation is apparent by a simple comparison of the proposals contained in the white paper released in February 2013 and positions proposed in the draft VAT Bill. It would be disingenuous therefore to suggest that the consultation period has only just begun with the release of the draft documents. While none of the concessions agreed upon or compromises made during initial discussions could be said to be concrete or documented before now, it is apparent that the MOF had chosen to incorporate some of the portions agreed with the various sectors, associations and interest groups into the draft that was released last week Friday.
The arguments put forward
The discussion on the introduction of VAT has been predictable until recently. As was expected, the government has sought to articulate the importance of broadening its tax base to increase revenue as part of its fiscal consolidation plan to correct the country’s fiscal imbalance. The MOF in leading this charge has highlighted the critical condition of The Bahamas’ finances and submitted that VAT is the best option for boosting government revenue at this point, bearing in mind that tariff rates must be reduced and trade barriers addressed if we are to accede to the World Trade Organization (WTO).
It has been stated and noted that The Bahamas remains the only country in the Western Hemisphere that is not a member of the WTO and the government has warned that this puts us at a competitive disadvantage from an international trade perspective. While the government has stated its commitment to curbing its spending and reducing subventions to its agencies and statutory bodies, the impact of reducing the public service with the current unemployment figures has been outlined using statistics on the multiplier effect on the economy and consumer spending by the MOF.
On the other hand, the private sector had taken the position that the government need not introduce new taxes but rather focus on cutting its expenditures and efficiently and effectively collect existing taxes including those that remain outstanding. The private sector had further suggested that the introduction of VAT at this juncture, considering the current economic climate, would be inappropriate and further slow down an economy trying to fully recover from the Great Recession. A reduction in the size of government, cutting of the public sector workforce and divesting of state-owned enterprises have also been recommended in a bid to address the GFS deficit and national debt.
The meeting of the minds
Our ability to come together in a non-partisan manner in times of crisis for the common good of our beloved country and future generations of Bahamians has become pronounced in recent times. While it is our hope that this is not an isolated development, it is imperative that we applaud the Tax Coalition of the Bahamas Chamber of Commerce and Employers Confederation (BCCEC), the opposition party and other economic experts for what appears to be a willingness to contribute to the discussion and work with the government to address our fiscal crisis.
While enough blame for our current precarious fiscal position can be placed on successive administrations responsible for the governance of The Bahamas, the Tax Coalition was right in stating that we are all responsible for this predicament and all Bahamians have a role to play in solving our financial woes. James Smith, former governor of the Central Bank and former minister of state for finance, on his part had reiterated that tax reform, and more specifically the implementation of VAT, will not be without pain.
The meeting of minds on the seriousness of the state of affairs of our finances and the consequences of not embarking on an urgent correction program must precede any logical discussion on the structure, details and specifics of the tax reform framework. As we appear to have arrived at this point, hopefully the discussions will be elevated to ensure that all parties adhere to their commitments in returning The Bahamas to better financial health and prevent any further downgrades by international rating agencies, multilateral organizations and any potential loss of investor confidence in our economy.
At the core of this matter is the realization that successive administrations have with the help of local and internal experts considered the issue of tax reform and VAT for several years; however, the fortitude to confront the proverbial elephant in the room has been lacking until now albeit this has been spurred by the desperation created by the predicament we find ourselves in.
Preparing for VAT
As the July 1, 2014 proposed VAT implementation date approaches, enough has been said about the need for public education. Ironically, it has been reported that the turnout for the educational and informational sessions held by the MOF to date have not been too impressive. The MOF has promised to strengthen its VAT education and awareness campaign in the weeks ahead. However, it is important that all stakeholders get involved in this process following the release of the VAT governing documents. The media, industry associations, regulatory agencies, business entities and Members of Parliament will have to play significant roles in enlightening the masses in what is perhaps the most substantial change to our tax system in decades.
The private sector must also ensure that their concerns are documented and brought to the attention of the government. It would be a worthwhile exercise to properly review the draft legislation with a view to providing constructive criticism and useful recommendations to improve the draft bill. Business entities will also need to invest their time and resources into understanding what VAT will mean in the context of their operations.
Finally, the general public must fully recognize and appreciate that VAT is a consumption tax; that is, it taxes us on what we consume. The final consumer will bear the ultimate burden of VAT and hence we must familiarize ourselves with the various goods and services that are subject to 15 percent VAT, 10 percent VAT, exempt status and zero-rated status. Attendance at upcoming briefing and educational sessions on VAT by all Bahamians and local residents is therefore encouraged by this writer.
The VAT challenge
Regardless of where the VAT debate takes us in the months ahead, we must remember that there is hardly any gain without pain and there is seldom triumph without trials. Indeed, in Christianity we often state that where there is no cross there is no crown. I n this sense, the days ahead will have challenges but we must look beyond these to the future of our Bahamaland and work towards restoring her by putting country first.
That being said, the government must double its efforts to simplify the VAT debate for the average Bahamian. The MOF must work tirelessly to consider and address all concerns raised by the public during the consultation period. The relevant systems must be put in place and resources engaged to ensure the effective and efficient administrative of VAT. More importantly, the government must continue to demonstrate commitment to fiscal prudence and containment of expenditure.
If our country fails, we all fail, as we have nowhere else to call home or to claim as our own. It would be illogical not to state that no amount of preparation can guarantee a hitch-free implementation, and the introduction of VAT will not be perfect. The record shows that other countries have had challenges in spite of having devoted years to preparation. We must be determined to make it work and co-operate with one another if The Bahamas is to emerge successfully from this fiscal crisis. In the final analysis, the government will have to unequivocally convince the public as to why VAT is the best option at this time and confirm the implementation date. One thing is certain: The urgency of now does not provide us with much time.
• Arinthia S. Komolafe is an attorney-at-law. Comments on this article can be directed to a.s.komolafe510@gmail.com.
December 03, 2013
