Former Prime Minister of Barbados, Owen Arthur on The Bahamas' proposed Value Added Tax (VAT)

Former Barbados PM Chimes in on VAT Talks

The Bahama Journal
Nassau, The Bahamas

The country’s proposed Value Added Tax (VAT) has to be a relatively simple structure, with only two rates, few exemptions and a relatively high threshold, according to a regional leader.

Addressing Grand Bahama’s business community, former Prime Minister of Barbados, Owen Arthur said no matter how sound the reasons are for introducing a VAT and no matter how perfect its features are in their conceptual design, “the success of the new tax will depend on the strength and sensitivity surrounding the planning and administration of its introduction.”

“To address this challenge, no effort should be spared to design and to have in place a fully competent VAT implementation unit before the VAT is introduced,” he said.

“The drafting of the legislation for the VAT also has to draw from best practice. In particular, drafts have to make the subject of extensive discussion and refinement and the legitimate concerns of stakeholders have to be embraced and reflected in the bill to be presented to Parliament to secure strong stakeholder sense of ownership of the new tax.”

“A systematic effort also has to be made to deal with the registration of those liable to pay the tax, and to iron out the transitional problems which are sure to arise as one tax regime is replaced by another. One major transitional issue is sure to concern the procedures that are put in to be in place to enable businesses to manage inventories as one tax regime is replaced by another.”

The three-time PM was in town to offer his opinion on the likely impact of introducing a VAT in The Bahamas.

It was under Mr. Arthur’s leadership that the VAT was introduced to Barbados in the mid-90s.

For The Bahamas, the Barbados prime minister said he could not overemphasize how important it is to establish and prove the base of the tax before making adjustments.

“A VAT on a large base that yields more revenue than required can always be adjusted and right-sized,” he said.

“But it is almost politically impossible to start with too narrow a base and to hope thereafter to expand it. Policymakers in The Bahamas will have to contend with and to deal successfully with a number of other issues relating to the incidence and effects of a VAT.”

The Bahamas is one of the few countries that have not yet implemented the tax and the only country in the Western Hemisphere that has not joined the World Trade Organisation (WTO).

The Christie administration has however produced a white paper on the issue, looking very carefully at what Barbados has accomplished.

“For a country whose economic activities and performance are influenced, to an extraordinary degree, by its participation in the global economic arena, it is inconceivable that The Bahamas will be able to indefinitely maintain this ‘odd man out’ status where relating to a rules-based international economy is concerned,” Mr. Arthur said.

“The relevant issue therefore is not that as to whether The Bahamas should become a member of the WTO. It is that as to how best the nation should prepare for and negotiate the terms of its participation in this critical institution and how it should do so while giving equal priority to the other reforms that the forging of such a relationship with the global economy are sure to trigger.”

In Barbados the VAT was intended to yield the same revenue as the taxes it replaced.

The former prime minister said its yield, buoyancy having been established, verified and the fine tuning of the scope of its base was subsequently undertaken.

Its introduction coincided with the implementation of its obligations as part of the Caribbean Single Market and Economy (CSME), to reduce its extra-regional tariffs from a high of 45 to 20 per cent.

He said it also coincided with the OECD Harmful Tax Initiative threat to the functioning of Barbados’ International Business and Financial Sector that helped to reduce the growth prospects of its economy.

In Barbados, the VAT was used to replace 11 forms of indirect taxes, and 44 kinds of fees as a means of raising revenue.

Despite its challenges, Mr. Arthur feels Barbados is seen as a success story.

17 July, 2013

Jones Bahamas

Bahamas Blog International

Owen Arthur - the Caribbean Commissioner the region should have

By Sir Ronald Sanders:


Owen Arthur, the former Prime Minister of Barbados, is probably one of the best Commissioners of a Caribbean Commission that the region does not have but ought to have.

Indeed, had Caribbean Community and Common market (CARICOM) governments implemented the recommendation of the 1992 West Indian Commission to establish a Caribbean Commission, we may today have as its President, PJ Patterson the former Prime Minister of Jamaica, Owen Arthur as one of its Commissioners and someone from the OECS of the regional calibre of say, Ralph Gonsalves the present Prime Minister of St Vincent and the Grenadines, or Vaughan Lewis former Prime Minister of St Lucia, as the third Commissioner.

Had such a Commission been in place and operating, CARICOM countries may have been dealing with their current financial and economic crises in a collective and cohesive fashion, and much better than they are currently.

As it is, each country has struggled to deal on an individual basis with the walloping effects not only of the global financial crisis, but also of the consequences of the collapse of CLICO and British American.

While it is true that in mid-June, the governments of the seven small members of the Organization of Eastern Caribbean States (OECS) signed a Treaty to establish an Economic Union among themselves, that treaty is not yet operational and while, once it is operational, it will represent progress, it remains insufficient. It is the wider CARICOM region that has to deepen its integration arrangements and especially its machinery for joint decision-making and implementation.

Regrettably, Owen Arthur is not looking for a job as a Commissioner or even Head of a Caribbean Commission. Indeed, one interpretation of a comment he made recently in the Bahamas suggests that he may be interested in being Prime Minister of Barbados once again.

In a very important speech to the Institute of Chartered Accountants of the Caribbean at its annual meeting in the Bahamas on June 25, Arthur said: “You should allow me to begin by stating how very pleased I am to be able to share the same platform once again with Prime Minister Hubert Ingraham who until recently, like I do now, carried the title of Former Prime Minister. His presence fortifies my belief in the concept of the second coming”.

Whatever Arthur meant by that comment, the rest of his statement was a telling analysis of the present financial and economic condition of the Caribbean Community, and a blistering revelation of the lack of support from the International Financial Institutions (IFI’s).

It has to be said, however, that while the IFI’s have not been as responsive to the Caribbean as they could have been, and the IMF in particular has applied the usual prescriptions for providing Stand-By arrangements to Jamaica and Antigua and Barbuda, CARICOM countries failed to provide the IFI’s and major world economies with a clearly defined plan of what they need, for what, and how they plan to repay it.

It should be recalled that when the global financial crisis erupted, the world, and the Caribbean Region within it, faced an economic crisis of unprecedented proportions. Globalisation threatened to overwhelm the Caribbean with a world-wide recession, and indeed it did. Growth in every country except Guyana (according to the IMF) declined in 2008 and 2009. In some cases, there was negative growth. The ratio of debt to GDP escalated everywhere even in normally cautious Barbados. Tourism, on which the entire region (except Guyana and Trinidad and Tobago) now relies, declined everywhere if not in numbers, certainly in spending.

No State, no Government, no society within the region was immune from the economic consequences of the global financial crisis and the effects of the collapse of CLICO and British American. In that context, CARICOM societies expected their governments to come together to explore measures they could take in concert to enlarge the capacity of the region. Indeed, several regional commentators urged such action in very specific terms. As it turned out, CARICOM governments set up two separate task forces and both reported, but no joint plan was put to the IFI’s and none to the major world economies.

Owen Arthur reminded his audience in the Bahamas that “in April 2009, the G20 countries pledged provision of an additional $1.1 trillion to the IMF and the Multilateral Development Banks to enable them to carry out a programme to restore credit, growth and jobs to the world economy”, and he observed that “we have witnessed the carrying out of a rescue and recovery programme for the world’s developed economies, involving an unprecedented commitment of financial resources and the incurring of fiscal deficits on a scale that has hitherto been unimaginable”.

But, while the developed countries were bailing themselves out, they failed to deliver on the pledge “to make available an additional $850 billion of resources through the IMF and the multilateral development banks to support growth in emerging market and developing countries by helping to finance counter-cyclical spending, bank recapitalization, infrastructure, trade finance, balance of payments support, debt rollover and social support”.

Arthur pointed out that the IMF introduced a new Flexible Credit Line through which the bulk of additional IMF financing was to be channelled. As he said: “It was also especially intended to herald a fundamental change in the procedures for accessing IMF funds and meeting IMF programming tests”.

However, it could not be used by Caribbean countries and the facility into which $500 billion was pledged to support recovery in the developing world was used by countries in Latin America, Africa, Eastern Europe and Asia.

In the Caribbean, the IMF has agreed to two Stand-by Arrangements, one for $1.3 billion with Jamaica, and the other for almost $120 million with Antigua and Barbuda for which all the traditional IMF conditionalities apply.

As Arthur concludes: “It however cannot fairly be said that IMF response has or will assist in any major material way in achieving the grand overarching objectives stated on April 2nd, 2009 of fostering counter-cyclical stimulation, spurring employment creation nor attending to the needs of structural diversification in Caribbean economies”.

The space allowed in this commentary does not permit discussion of Arthur’s analysis of the lack of adequate response by other IFI’s to the Caribbean. But, his statement should be compulsory reading for all.

His conclusion is also extremely important. He said: “Where there is common threat, we must devise and pursue a common response. Should this global crisis engender such a common response to the common threats faced by the societies of the region, it will have served to usher in a better way of doing things in the Caribbean and will help to ensure that our best days are still ahead of us”.

In simple terms, Owen Arthur has made the case for a Caribbean Commission. If it were in existence, and if someone of his calibre – if not he himself – was Commissioner for the Community’s finance and trade negotiations, the region as whole might have got from the IFI’s a reasonable share of the resources it has been denied – largely because it failed to produce a clearly defined plan that could be effectively argued.

July 2, 2010

caribbeannetnews

Bahamas Blog International