The need for a properly-structured Value-Added Tax (VAT) education programme in The Bahamas

'Confusion' Between Vat Law, Guidance Must Be Eliminated

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Nassau, The Bahamas


A Tax Coalition co-chair has called for apparent differences between the Value-Added Tax (VAT) legislation and ‘guidance notes’ to be “resolved”, agreeing that there was “confusion between the two”.

Robert Myers told Tribune Business there were numerous “loose ends” remaining in relation to VAT, and that he had called for another meeting of the joint government-private sector advisory committee to tackle concerns that had been “batted back and forth”.

Agreeing that implementation was unlikely to be seamless because the Government was trying to “fast track” the process, Mr Myers said his call for the Christie administration to stop throwing VAT “information hand grenades” had been validated by last week’s events.

John Rolle, the Ministry of Finance’s financial secretary, caused temporary turmoil in Freeport’s business community when he inadvertently suggested 7.5 per cent VAT would be levied on the city’s ‘bonded goods’ regime - a mistake later retracted and corrected.

Mr Myers, though, said this proved the need for a properly-structured VAT education programme, otherwise the risk remained that mistakes and misunderstandings might cause “widespread panic”.

One area that needs to be tightened is ensuring the Ministry of Finance’s VAT ‘guidance notes’ conform with what is in the legislation and regulations.

The Government has already had to issue one clarification here in relation to pre-existing contracts, confirming that the VAT Act requires that the service/goods recipient at all times will pay the tax - not the provider/vendor.

Yet the VAT ‘guidance notes’ appeared to take the opposite position on pre-existing business and commercial rental contracts, stating that if no agreement could be reached with the recipient/tenant to pay the tax post-January 1, the vendor/landlord would have to ‘eat’ it as the Government would assume the tax is contained in the contract sum.

“That’s an area we’re going to have to go through,” Mr Myers told Tribune Business of potential discrepancies between the VAT legislation/regulations and ‘guidance notes’.

“There clearly is a gap. There clearly is some confusion between the two. We need to get that resolved. There’s a lot of loose ends.”

The Coalition for Responsible Taxation co-chairman, meanwhile, said last week’s mistakes in Freeport had “validated” his call for a structured VAT education process.

“It only strengthens what I said, which is that we’ve got to get a process for doing this, and get these training modules out so people are clear,” he told Tribune Business.

“You can see there’s a definite need to calm the process when high ranking officials don’t get it right, and get something that’s digestible for the public and private sector. We don’t want to create widespread panic. It’s got to be a calm process.

“If that means slowing it down to get it right, let’s do so. Let’s make sure what we do is done in a calm, responsible and deliberate way. We need to do it in a responsible, deliberate and calm fashion. It’s important that everyone understands, is comfortable and no one is panicked.”

Mr Myers said he was now pushing the Government to hold a second meeting of the joint private-public sector VAT advisory committee, adding: “I’m hoping to pull that off, because we need to hit them [the Government] with a list and get some answers on stuff that’s kind of been batted back and forth.”

He conceded, though, that VAT implementation on January 1 was likely to be far from smooth given the haste with which the Government was seeking to move on tax reform.

Mr Myers said New Zealand, whose experience the Bahamas’ has drawn on a great deal, used a 14-18 month gap between their VAT legislation’s public release and implementation to iron out any problems.

The Bahamas, by contrast, was attempting to do the same in less than six months, though the Government would argue that the initial draft’s November 2013 release has given everyone 13-14 months to prepare.

“It’s going to be a bit of a mess because we’re trying to fast track the process,” Mr Myers told Tribune Business. “We’re trying to do it in how many months? You can’t expect to have a seamless process when you’re trying to fast track something like this.

“There’s going to be issues. The more we can get ahead of it and cut off confusion by vetting documents, and only then get them out to the private sector, you will have a lot less noise.”

He added: “Clearly there’s a lot of confusion at this point, and it’s not going to stop as long as we don’t follow the process. We’ve got to be responsible in the way we do that.

“First vet the legislation, regulations and guidance notes, clear as much of the confusion up as possible, then get thye education platform launched and get support teams out there, hitting each of the sectors.

Mr Myers suggested that the education process start with the Bahamas’ largest businesses, who were expected to be the biggest VAT collectors, “and then work down from there”.

He conceded that the VAT education process was “still very erratic” and “a bit disjointed in my humble opinion. I expect that to clear up; I hope it clears up significantly over the next couple of weeks or months”.

He warned that the Bahamas, both the Government and private sector, “can’t afford” for VAT education to fail because it would automatically mean reduced compliance. And less compliance will result in an increased VAT rate, and new and increased taxes elsewhere.

September 15, 2014

Tribune242

Serious concerns expressed over the “rushed” passing of Value Added Tax (VAT) legislation in the Bahamian Parliament

Fnm Angry Over 'Rushed' Passing Of Vat

By RASHAD ROLLE

Tribune Staff Reporter

rrolle@tribunemedia.net
Nassau, The Bahamas

PETER Turnquest, FNM Shadow Minister for Finance, expressed concern yesterday over the “rushed” passing of Value Added Tax legislation in Parliament on Wednesday.

Mr Turnquest said the government may have tried to distract Bahamians from VAT by sandwiching debate on the Bill between debates on the constitutional referendum and the revised Gaming Bill, which is expected to be tabled after debate on the referendum Bills have been completed.

VAT was passed in the House on Wednesday night after two days of debate. But Mr Turnquest said parliamentarians should have been given more than 30 minutes to make their contributions on the Bill.

“We are still in the middle of finishing the debate on the constitutional amendment Bills, a significant moment in our democracy and right in the middle you inject something as significant as tax reform?” Mr Turnquest told the House during the debate. “You’re bringing in this new way of taxing people despite the fact that it has not been properly explained in terms of the technical nature of how it will be applied and requirements of it as well as explaining how it will affect the day-to-day lives of people and the safeguards put in to ensure this new tax does not push people down to the poverty line?

“I don’t think they’ve done sufficient work to bring this tax in and I think they rushed this debate. They have heard from the business community, but I don’t believe those consultations have reached the point that we could say with all honesty and transparency that this is the best we have to offer.”

Mr Turnquest said Bahamians have not been properly consulted on VAT, adding that a referendum/opinion poll should have taken place before the government decided to implement the tax.

“I recommended that just like the gaming referendum, they ought to have done the same thing because this is a significant change,” he said. “I believe Bahamians ought to have a voice to decide whether this is something we want or want another alternative. I believe this process was significantly rushed.”

As far as debating important bills in a short period of time, Mr Turnquest said debate on VAT should have been given priority over debate on the constitutional referendum.

“To put constitutional Bills ahead of VAT could have been a distraction against VAT,” he said. “Even the Gaming Bill that will come up, this is all significant legislation and they’re not giving us proper time to air all our concerns. They wanted people to be confused and to take their eye off the ball and they have unfortunately been successful to some extent.”

Mr Turnquest said in order to fully flesh out their views on fiscal reform, parliamentarians should have been given an hour to make their contributions as they are during the annual budget debate.

August 22, 2014

Tribune 242

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: johngfcarey@hotmail.com.

August 01, 2014

thenassauguardian

The Value Added Tax (VAT) Option trumps a Payroll Tax in The Bahamas

‘Payroll Tax Not A Viable Option’

 

Tribune 242
Nassau, The Bahamas:


BAHAMIAN workers would face grave reductions in take-home pay if a payroll tax were implemented instead of a Value Added Tax (VAT), the three leading government voices in financial affairs, including the Prime Minister, agreed.

“You would need a payroll tax of 20-25 per cent to equal what a VAT of 15 per cent would generate,” said Prime Minister Perry Christie.

The Prime Minister was addressing a national conclave for Chambers of Commerce at Breezes on April 2.

Asked if the government had considered alternatives to VAT, the Prime Minister said absolutely, and was still listening to and talking with people. But a payroll tax would penalise the working individual, he said, a conclusion echoed by Minister of State for Finance Michael Halkitis and by Financial Secretary John Rolle.

Both said government had plugged payroll tax into a model, and the results showed the impact on the economy, including smaller take-home paychecks, would be far greater than the anticipated 5-6 per cent cost of living increase that will accompany the first year of VAT.

According to government’s figures, it would take a 16 per cent salary deduction to equal what a 10 per cent VAT rate across the board would generate. The deduction would have to be between 20 per cent and 25 per cent to generate as much as a 15 per cent VAT rate would net. 

“The net positive impacts (of VAT) outweigh the net negative impacts,” said Mr Halkitis, noting that the Bahamas still does not have capital gains tax, estate taxes, corporate or individual income tax.

Minister for Financial Services Ryan Pinder said the Bahamas remains one of the lowest percentage tax regimes in the world. 

The Bahamas rate of taxation to GDP is 16 per cent, he said, while US taxpayers cough up 32 per cent of the gross domestic product in taxes every year. 

“The real question,” said Minister of State for Investments Khaalis Rolle, “is can we afford not to do it?”

Warning of the increased scrutiny of credit rating agencies, he said: “It only takes one person, one suggestion that the Bahamas is not a good place to invest, not a safe place to put your money, and guess what happens – it not only impacts the government, it impacts everyone. We have only one chance to get it right.”

April 15, 2014

Tribune 242