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

The Bahamas cannot afford to "sit and wait" for economic recovery to be driven by the US - says James Smith, former minister of state for finance

Bahamas can't 'sit and wait' for US tide to lift recovery
By NEIL HARTNELL
Tribune Business Editor:



THE Bahamas cannot afford to "sit and wait" for economic recovery to be driven by the US, a former finance minister warned yesterday, urging this nation to "fix" its high cost base and structural inefficiencies, given that "unacceptable levels of unemployment" were set to linger post-recession.

Describing the recovery outlook as "fair to overcast", James Smith, former minister of state for finance in the Christie-led administration, told Tribune Business that to escape from arguably the deepest recession since the 1930's Great Depression, this nation needed to long beyond its traditional reliance on a rising US tide to lift the Bahamian boat.

"For us this time around I think we have to go beyond recovery in the US," Mr Smith said. "For us to participate in that recovery, we need to do more things to fix our major industry, addressing the cost, for the simple reason that during this recession our major travel market, the US, had the opportunity to see what was happening in our competitors, Cancun and other, where they have been a little more competitive."

Rival Caribbean destinations, with lower cost structures/bases, had been more competitive with US tourists seeking greater value and better prices, something that was borne out, Mr Smith suggested, by the fact that the Bahamas had - along with Jamaica - suffered the longest period of economic contraction.

The Bahamas had done "worse than other countries", the former finance minister added, pointing to the fact that while this nation had been among the first to slip into recession during the 2008 second half, it was among the last predicted to recover, with economic growth not forecast to resume until 2011.

"We've had two years of negative growth in GDP besides Jamaica. A lot of other countries are more competitive, so it suggests, broadly speaking, that there are other areas of the economy that needs fixing," Mr Smith told Tribune Business.

"One that springs immediately to mind is the cost structure and competitiveness in that area. As we look to recover, we have to do more than sit back and wait for it to happen. We have to address without delay our cost structure and making our main sector more competitive.

"This would be a good time to do it, while all are feeling the pinch and recognising the need to improve, so it would be easier to take the programme forward. They would realise we have to do a better job than we have been doing. We have to take this opportunity to improve the services we give at all levels, and the cost of these services."

Energy and labour were the two critical cost components that had to be addressed, Mr Smith said. While it was not practical to reduce wages, due to the high living cost in the Bahamas as well as the presence of highly restrictive trade union agreements, the former minister suggested that this nation tackle "fundamental issues" - enhanced efficiency, bringing pay in line with productivity, and "getting rid of wastage in the public sector".

"We know what to do, we just have to start doing it," Mr Smith said, describing the persistence of high unemployment levels (last officially measured at 14.5 per cent, but believed to be higher) as a "vexing problem for the Bahamas".

One factor behind the hotel industry's relatively high costs in comparison to rivals was that the Bahamas had "more people employed per room", and during the recession resorts had found ways to operate more efficiently with less staff following the late 2008/early 2009 lay-offs.

"The prospect of a return of jobs at the same level over a short period of time is pretty bleak," Mr Smith said. "Jobs have to be created in other areas, and we may find ourselves with unacceptable levels of unemployment for a long period of time, even after the recession has passed. We're really not seeing any signals out there that there will be a quick turnaround."

The former finance minister also expressed scepticism that the Government's increased taxes would not achieve the objective of plugging the Bahamas' fiscal deficit or reducing the national debt, as they were being impose against a backdrop of reduced national income and economic growth that was sluggish to non-existent.

"The increase has fallen disproportionately on the business sector, so we will not have them expanding and hiring people," Mr Smith said. "We might be in a Catch-22 position. The Government needs revenue, so it raised taxes, but it might not get paid in full because people are not working."

To move the Bahamas forward, Mr Smith said the Government and all economic stakeholders needed to dialogue and come to a consensus on a sustainable development strategy for the Bahamas, ensuring that issues such as public sector investment in education were not impacted when administrations changed - that policy stayed broadly in course, in line with a national plan.

He also warned against "trade offs", where the Bahamas sacrificed future generations - for instance, by compromising the environment - in return for development and foreign direct investment now.

August 27, 2010

tribune242

Bahamas Blog International