Property Tax Reform in The Bahamas

Tax System Inadequate, Says Halkitis

By Jones Bahamas:



The current property tax system is inadequate and riddled with duplications, this according to Minster of State for Finance Michael Halkitis who stressed that an overhaul of the entire system is needed as the government moves to collect outstanding property taxes.

“What we recognise is that the IT system we have in place is inadequate to track and make updates to make sure the information is corrected so we have entered into an agreement with an IT provider to give us a new property tax system that is modern and based on GPS,” he said.

“Going forward we want to have clean information system so that we can do a better job so that years from now we are not back in this position.”

He added that the government is faced with a huge task of collecting Real Property Tax dating as far back as 30 years ago.

While the number value is still unknown, Mr. Halkitis said that $500 million dollars in outstanding property tax figure that is being thrown around, however he said that dollar amount could very well be an inflated estimate.

“What we have learned is that the information in the system is not always reliable, we find almost daily people coming in and they say I receive this huge bill but when you take a second look at it in many occasions you may find for example, a common error is where something being classified as commercial when it should have been classified as residential so you make adjustments to correct the information and you begin to find that the numbers we believe are outstanding is really not outstanding.”

The accounting firm Kikivarakis & Co and private debt collectors are currently assisting the government with recovering its debt.

On that note Mr. Halkitis said that the government is making some progress towards recovering those monies owed.

He added that by the mid-year budget or even before then, he will be able to give an update on those property tax reform measures.

October 02, 2014

Jones Bahamas

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

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

...it is the wrong time to propose implementing value-added tax (VAT) in The Bahamas ...as he it would likely spawn more social ills ...if the Bahamian economy doesn’t improve in the coming months ...says Bahamas Christian Council (BCC)

Patterson: VAT may increase suffering

Christian Council head says economy too fragile for new tax

BY KRYSTEL ROLLE-BROWN
Guardian Staff Reporter
krystel@nasguard.com
Nassau, The Bahamas

With less than six months before the introduction of value-added tax (VAT), Bahamas Christian Council (BCC) President Dr. Ranford Patterson warned that it is the wrong time to propose implementing the new tax, as he believes it would likely spawn more social ills if the economy doesn’t improve in the coming months.

Patterson said while the BCC generally supports the government’s efforts toward tax reform, the timing of its introduction could cause more problems.

Patterson said he also has some reservations about the rate of the tax.

“No government can operate without tax reform,” he said. “But I believe this is a [bad] time to pose any new tax on the Bahamian people. But we understand that there is a need to tax reform.

“I believe that the lower income people in our country are going to suffer even more as a result of the implementation of VAT. I think there needs to be a balance of the time and the rate. Everything needs to be at the right time.

“I don’t think we are at the right time. There are too many people who are out of a job. There are too many people who don’t have the basic necessities.”

Asked if he believes that January would be better, he said, “If the economy remains the way it is, then the answer is no”.

“I think we’ll see more social ills. Things will get much worse if the economy doesn’t change soon.”

The government intends to bring the VAT legislation to the House of Assembly before the end of this month, Minister of State for Finance Michael Halkitis confirmed earlier this week.

He said the education campaign will pick up in earnest following the tabling of that bill. He also suggested that the education process will help ease some of the fear that the new tax has caused.

But Patterson said he isn’t sure about that.

“Everybody is weary of it,” he said.

“Everybody is afraid of the fact that what I can buy for a dollar today, it won’t be valued for a dollar tomorrow. That’s a challenge.”

He said the government must “be careful how we implement these taxes and when we implement them”.

Prime Minister Perry Christie recently expressed confidence that the economy would improve over the next six months.

He told reporters earlier this month that he is “excited” about the country’s future prospects.

July 12, 2014

thenassauguardian

The Bahamas collects an estimated 40% of its tax capacity

Bahamas Near Bottom At 40% 'Tax Capacity'

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net
Nassau, The Bahamas

The Bahamas is currently operating at just 40 per cent of its tax capacity, the Government’s US consultants have warned, ranking this nation near-bottom of 98 countries.

The Compass Lexecon report, which the Government leaned on heavily to produce its restructured 7.5 per cent Value-Added Tax (VAT), also strongly backed the Bahamian private sector’s calls for greater enforcement and compliance with the existing tax system, noting that only 40 per cent of real property tax bills are being paid.

“The IMF has estimated that The Bahamas collects only 40 per cent of its maximum attainable tax-to-GDP ratio as determined by the economic structure of the country, a metric on which it ranks 92nd out of 98 nations,” Compass Lexecon said.

“In comparison, Sweden and Denmark collect 98 per cent of their tax capacity.”

This will likely add fuel to ongoing private sector, and public, suggestions that if the Government were to get existing tax compliance levels up to international standards, and combine this with targeted spending cuts/restraint, there would be no need for Value-Added Tax (VAT) or any other new taxes.

Robert Myers, the Coalition for Responsible Taxation’s co-chair, yesterday told Tribune Business that the Bahamas’ tax compliance rates and ratios were “skewed” by the fact the collective $285 million in annual investment incentives is treated as revenue foregone.

But, acknowledging that compliance rates with the existing system were “still lower than they should be”, he added: “Some of that is due to the fact we have concessions, so concessions are factored in.

“Compliance does take a hit because of the concessions given out to the hotel industry and other investors. These concessions are counted as revenue, but hurt our compliance.

“It makes it difficult to say what the true compliance is, but it’s still low; lower than it should be,” Mr Myers added. “It does skew the numbers.”

The Government’s restructured 7.5 per cent VAT appears to be a model produced from the amalgamation of Compass Lexecon’s report with that produced by the two New Zealand consultants, Dr Don Brash and John Shewan.

The private sector’s efforts further buttressed these reports, and the lateness of the Government’s decision is further highlighted by the date on the final Compass Lexecon report - May 27 - the day before the 2014-2015 Budget announcement.

Returning to the poor compliance/enforcement theme, Compass Lexecon said: “At present, taxes in the Bahamas are regressive, inefficiently administered, and apply to a very narrow base.

“The Bahamas is not realising anywhere near its potential revenue on property taxes. The Government presently exempts the first B$250,000 on owner-occupied housing and does not means test this exemption, while it also gives breaks to hotels, timeshares, and other tourist-related investments.

“In addition to having a narrow tax base, the Bahamian property tax is inconsistently applied. Government property rolls have a coverage rate of about 70 per cent, and the Government receives payment on only 40 per cent of the property tax bills it issues. Enforcement against non-compliance has been weak to non-existent.”

The Government has repeatedly pledged to address this issue, and Michael Halkitis, minister of state for finance, on Monday said another 1,000 properties had been added to the tax roll following the latest amnesty programme’s conclusion.

As for Customs, the Compass Lexecon report said it was investing $6.745 million over three years to re-engineer its business processes.

“Reforms include the development of a new computerised system for the processing of transactions, training for staff in the implementation of the new trade agreements, the introduction of a new K9 unit, and the enhancement of the existing marine unit,,” Compass Lexecon said.

“These measures are expected to improve enforcement capabilities, decrease fraudulent activities, and reduce the cost of collecting revenue by 15 per cent.” To comply with World Trade Organisation (WTO) requirements, the Bahamas is looking to reduce the weighted average tariff rate to 10 per cent - a drop of 15 percentage points.

The US consultants also disclosed their belief that the original 15 per cent VAT model, and estimates that it would generate a net revenue increase equal to 2 per cent of GDP, “may not be necessary to put the Bahamian Budget on a sustainable trajectory”.

“Furthermore, immediate implementation of a VAT at this rate would substantially reduce economic growth over the short and medium terms, which would result in even higher unemployment,” Compass Lexecon said.

“In combination with other fiscal reforms, a VAT raising less revenue than initially proposed - in the range of 1 per cent of GDP in incremental revenue rather than over 2 per cent - should be sufficient to address the long-term fiscal challenge, and would be substantially less of a drag on short-term economic growth and employment.”

The US consultants said this pointed to the option ultimately chosen by the Government - VAT in the range of 5-10 per cent - with the “greater flexibility” to increase this if more revenue was needed.

Compass Lexecon said that with VAT raising revenue equivalent to 1 per cent of GDP from 2015-2016 onwards, debt would start to fall by one percentage point, growing to almost a two percentage point drop the following fiscal year.

“But, this is only the case if all other deficit reduction measures are fully implemented and achieve the targeted savings, and the economy grows as expected,” Compass Lexecon said.

“Notably, the most recent IMF projection shows debt-to-GDP falling by smaller amounts than in the Government’s official projections. The IMF’s pessimism largely results from the IMF assuming that the Government’s other revenue measures (like property tax reform) raise significantly less than the government projects.

“In sum, the target is achievable based on the Government’s current projections and without a VAT of 15 per cent, but there is a real risk that the extant measures discussed so far prove insufficient in achieving the fiscal targets and a higher VAT will be needed.”

June 04, 2014

Tribune 242

The Bahamas does not need another tax!

VAT model a recipe for disaster?

VAT on top of customs duties ‘a dangerous proposition’

CANDIA DAMES
Managing Editor
candia@nasguard.com
Nassau, The Bahamas

Dissecting the 2014/2015 budget

The logical impact of the government’s new model for value-added tax (VAT) is that it would likely result in less consumer demand and therefore less spending, according to Professor Gilbert Morris, an economist, who chairs the Turks and Caicos Resort Owners Economic Council.

In response to strong opposition from the business community to the originally planned 15 percent VAT rate, Prime Minister Perry Christie announced in the House of Assembly last Wednesday that VAT will now be implemented at a rate of 7.5 percent on January 1, 2015 and customs duties will essentially remain unchanged.

The previous plan called for a lowering of customs duties and an implementation date of July 1, 2014.

According to the 2014/2015 budget, the government projects that it will collect more under the 7.5 percent model than it projected under the previous 15 percent model.

The government had projected to collect $200 million under its old VAT plan. It now says the 7.5 percent would result in a collection of $300 million.

While on the surface the 7.5 percent rate sounds more palatable than the 15 percent, the fact that there will now be very few exemptions and unchanged customs duties (at least in the near term) may not produce a more desirable outcome for businesses and consumers.

But it is a painful measure the government says makes more sense to bear than cataclysmic repercussions within two to three years in the absence of reforms.

Morris predicts the 7.5 percent on top of customs duties will lead to substantial burdens for consumers who must shoulder the weight of current costs along with the new tax.

“My understanding also is that mortgage arrears are very, very high and in that situation if you’re going to add 7.5 percent VAT you’re just piling another cost on top of things and what will happen, because as you know, businesses don’t pay taxes; they pass taxes on to the consumers.

“But the taxes won’t simply be the 7.5 percent. Whatever it costs businesses to comply with the tax, it would be more like 8.5 percent...all of that will be passed on to the consumer.

“Here’s what this does. Consumers may then, and this is a theoretical point, but the logical follow through is that consumers may consume less. The economy may shrink. Black markets may emerge.”

In his budget communication, the prime minister was non-committal on when customs duties will be lowered.

“Moving to a single rate of VAT, other than zero for exports, with very limited exemptions would enormously reduce the compliance costs of the private sector and the enforcement costs for the public sector,” he said.

“Based on the revenue performance of VAT early next year, the government may be in a position to consider tariff and excise reductions at the time of the 2015/2016 budget.

“More general tariff rebalancing, however, is still a requirement that will need to be implemented once The Bahamas concludes the ongoing WTO negotiations.”

But Morris told National Review the new model is simply not a welcomed proposition.

“Adding 7.5 percent to the consumer spending bill to me is a dangerous proposition because you’re just going to lump that, essentially with duties remaining unchanged,” he reiterated.

The 7.5 percent VAT will come as disposable income and savings for many Bahamians remain virtually non existent.

The following year, January 1, 2016, the government plans to introduce National Health Insurance, which is expected to be financed by way of a payroll tax. This will further stretch the incomes of many Bahamians.

As it relates to VAT, the government has not yet revealed what products or services would be exempted, but the prime minister stressed that these will be “limited”.

Christie said VAT exemptions are a costlier method of trying to help the poor, because more revenue is sacrificed to those who are not poor.

“Having the means to provide direct assistance to low-income families is thus a far more efficient mechanism than exempting necessities from VAT,” he said.

The government is introducing VAT in response to what it says is a critical need to act.

Christie announced that government debt at the end of 2013/2014 is projected at $5.1 billion, or 60 percent of GDP.

This is up from the projected 59.4 percent of GDP in last year’s budget.

At the end of 2013/2014, the GFS deficit is expected to stand at $462 million, or 5.4 percent of GDP.

That compares to the budget estimate of $443 million, or 5.1 percent of GDP.

To cover its projected shortfall in revenue in the coming fiscal period, the government plans to borrow $343 million, pushing to $1.5 billion its total borrowing since coming to office.

Public debt interest is draining around $260 million of the annual budget and would likely trend even higher if the government fails to act, Christie noted.

With our finances at such a critical point, few would doubt the need to act. Just what action the government ought to be taking is the point of contention.

Morris contends, “You can’t add costs to an economy which shrinks consumer demand and project higher income. That’s basic economics.

“It’s just not possible because you make no provision for the increased costs of goods for businesses that won’t be able to cope, for businesses that have to add costs. If someone has to hire an accountant and pay out a certain amount every month that’s one staff person gone.”

Economic reform

The prime minister said economic developments in 2013 have had very clear implications for the evolution of public finances this fiscal year.

In particular, the tepid rate of growth of our economy, along with weak consumer demand and imports, impacted recurrent revenues directly, he reported.

Christie also laid out a series of investment projects he said would have a beneficial impact on the Bahamian economy.

“We are diligently striving to strengthen the foundations of the economy to secure steady growth and private sector employment creation,” he said.

“In particular, we are continuing our push to develop new and expanding private sector investment projects across the breadth of the nation.”

But Morris sees no serious effort at transformative economic reform.

“I see all these governments across the Caribbean talking about tax reform and again, as I always say, it’s not that these people are any less smart than anybody else,” he said.

“They went to the same schools with the people whose countries are doing very well, but they are stuck in a system and have adopted the priorities and prerogatives of that system, and appear to advance all that that system permits.

“A first-year economic student would not come with a concept of tax reform except it was embedded in economic reform, and so when I see governments of the Caribbean talking about tax reform and merely adding taxes this is a rather sad occurrence, unfortunate occurrence.”

Morris added, “Economic reform would reveal where that $300 million is going, whether it’s waste, whether there are outstanding taxes that you ought to have collected that you didn’t collect, what the reasons are for not collecting them, and it may be well in excess of the $300 million that you are about to add in taxes to the economy.

“So, the government has the power to tax and the power to impose penalties when people don’t pay taxes, but governments are refusing even to look at their own incompetence, the inability to collect taxes, and instead of reviewing those policies through economic reform and taking responsibility for them, they’re coming out with additional new taxes to make up the shortfall.

“This produces a sense and a habit of aversion in people because eventually people will begin to say why should I pay any more taxes?”

“They’re just going to waste it anyway, so people lose faith. They begin to resent the taxing power of the government and they lose faith in the judicious decision making of the government to spend tax dollars wisely.”

Christie claimed, however, that the government is addressing “deficiencies” in its “grossly deficient” system of tax administration.

But these reforms have clearly done little to change the course of public finances.

Morris is far from impressed.

“We should have had a comprehensive economic review and comprehensive economic reform and that would have revealed where our true direction should be,” he said.

“The Bahamas does not need another tax.”

June 02, 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

Value Added Tax (VAT) and The Bahamas: ...Moody's International Credit Rating Agency has assigned value-added tax (VAT) a credit positive ...and estimates it could account for a third of The Bahamas' government revenue by 2016

Moody’s assigns VAT credit positive

Moody’s projects new tax could make up third of govt revenue by 2016, serving as ‘significant catalyst’ in economic reform effort

BY JEFFREY TODD
Guardian Business Editor
jeffrey@nasguard.com
Nassau, The Bahamas

An international ratings agency has assigned value-added tax (VAT) a credit positive and estimates it could account for a third of government revenue by 2016.

Moody's official assessment, released yesterday morning, found that VAT will likely be revenue neutral in the first one or two years. The government recently announced it would implement the tax by July 2014. This delay in revenue is due to a large set of zero-rated or tax-exempt goods and services, according to the report, and the elimination of other taxes such as select excise duties and business licensing fees.

"Fiscal revenue gains will become apparent as the VAT system matures," Moody's stated.

"We estimate the gross contribution of VAT revenue will expand to six percent of GDP annually by 2016. This will be a significant catalyst for the government's fiscal consolidation efforts."

Indeed, other countries in the region with VAT systems in place, such as Barbados, Belize and Jamaica, report overall fiscal revenue contribution of about 30 percent, or around eight percent of GDP.

"The ultimate effect of tax reforms, including the VAT, on The Bahamas' creditworthiness will depend on the government's willingness and ability to embed them in a broader fiscal strategy that also begins to reign in the government's current expenditure commitments," the report continued.

Moody's explained that the government's tax base currently stands at less than 20 percent of GDP, which is small compared to other countries in the region. The ratings agency referred to trade-related customs duties as "volatile", and yet it made up 50 percent of the total revenue in 2012.

Most significantly, it noted that this revenue source will likely "shrink" as duties are phased out with World Trade Organization (WTO) ascension.

Moody's also highlighted the "significant tax concessions" in tourism. As a result, this area accounts for only 10 percent of fiscal revenues.

In his mid-year budget communication yesterday, Prime Minister Perry Christie hinted that these concessions could be scaled back as part of the government's aggressive strategy to right the economy.

Last year, according to the government, trade tax made up 9.3 percent of GDP. Property tax accounted for just 1.4 percent, tourism-related taxes 2.1 percent and non-tax revenue 1.4 percent.

"Other tax" made up 4.1 percent, bringing the total revenue composition to less than 20 percent of GDP.

"The VAT is a key element of a broader set of structural reforms introduced this year to expand and diversify the tax base. The reforms reflect the government's commitment to fiscal consolidation," the report said.

Interestingly, the ratings agency made no mention of the government's plan to bring the tax on board by next year. The Christie administration has been criticized for assigning an overly ambitious timeline, most recently by the Council for Concerned Bahamians Abroad.

James Smith, a former minister of state for finance, emphasized yesterday that VAT is not a new idea for The Bahamas. The first study, he said, was conducted in 2002 with the International Monetary Fund (IMF).

"It would appear starting fresh you would need more time. But a lot of the ground work has already been done," he told Guardian Business.

Of all the reforms introducing by Prime Minister Perry Christie in recent times, Smith said VAT is the most significant.

"It's something we have never done before, where we expand tax to cover services. For us, I think it is a dramatic change," he added.

February 26, 2013

thenassauguardian

Bahamas Blog International