The Tribune

By DENISE MAYCOCK

Tribune Freeport Reporter

dmaycock@tribunemedia.net

FREEPORT – Former Prime Minister of Barbados Owen Arthur says the introduction of a Value Added Tax should be viewed as an essential part of the broader sweep of economic reforms in the Bahamas.

He believes that the successful introduction of VAT is not beyond capacity of the government and the people of the Bahamas.

Mr Arthur was speaking at the Grand Bahama Chamber of Commerce’s monthly business meeting held at Pelican Bay Resort on Monday. He was invited to speak to businesspersons on the topic, “Value Added Tax (VAT): Its Impact on the Bahamas – A Caribbean Prospective.”

He noted that the VAT was successfully introduced in Barbados in 1997 under more challenging circumstances than those facing the Bahamas.

“Your Bahamas now has to find its way in a globalized economy which is governed in large measure by a body of international trade law, which has been supervised by a number of specific principles,” he said.

Mr Arthur said among these is the principle that countries should as far as possible reduce protection in domestic industries by reducing tariffs and removing other barriers to trade.

He added that another important principle of current law that was not around in 1947 is one that required that tariffs and economic policies and regulation should be applied without discrimination among countries.

“Of special interest to the Bahamas must be the new international trade law, which prohibits the application of domestic taxes and regulation which discriminate between domestic and imported products, and differences of so-called national treatment rule.

“Such rules are now enforced and are enforceable by the international institution, The World Trade Organization, which has mechanisms for settlements of disputes and enforcement of penalties when countries are in breach of the rules,” he stated.

These conditions, Mr Arthur said, were not there when Sir Stafford Sands put the contemporary structure of the Bahamas economy in place.

He stressed that the Bahamas is now the only country in the Western Hemisphere that is not a member of the WTO.

The former Prime Minister said: “For a country whose economic activity 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 out-man, out status.”

He indicated that the relevant issue is not whether the Bahamas should become a member of WTO, but rather how best the nation should prepare for and negotiate the terms of its participation in such a critical institution.

Additionally, he said, the Bahamas must also contemplate giving equal priority with other reforms that forging such a relationship with WTO and the global economy would trigger.

“The introduction and possible impact of the VAT, has therefore, in my judgment, to be viewed as an essential part of the broader sweep of economic reforms which have to be undertaken and implemented as a single coherent undertaking.”

He said the introduction of the VAT can be viewed as a necessary response to an evolving fiscal situation that derived from the Bahamas’ special domestic circumstances.

According to Mr Arthur, the Bahamas has a very narrow tax base that allows it to compete effectively with territories in its immediate neigbourhood which are still colonies of Britain, and which have economic structure similar to that of the Bahamas.

“However, unlike your neighbours, the Bahamas is evolving a pattern of expenditure associated with its assumption of all of the obligations of nationhood.

“This is beginning to be reflected in emergence of fiscal deficits and the growth of public debt,” he said.

This, he said, must constitute part of the rationale for fiscal reform, including a VAT in the Bahamas.

Mr Arthur indicated that the introduction of VAT in the Bahamas, no matter how well intended or designed it is, will be sure to generate its own controversy because it will bring into the tax net activities that are not now subject to indirect passes.

“Drawing on Barbados’ experience, the successful introduction of VAT is not beyond capacity of the government and the people of the Bahamas,” he said.

He noted that the when VAT was introduced in Barbados it was under more challenging circumstances than those facing the Bahamas.

Mr Arthur pointed out that the VAT was introduced in Barbados in 1997 at the same time Barbados started to apply the programme of trade liberalization reduction in duties, which had been agreed to when they became members of the WTO in 1994.

He said the introduction also coincided with the implementation of their obligations as part of the Caribbean Single Market and Economy to reduce their tariffs from a high of 45 per cent to 20 per cent.

“Above all, the scale of fiscal adjustment that was intended to be accomplished by the move to VAT by Barbados, far exceeded that now intended in the Bahamas,” he noted.

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

He noted that Barbados was cited as a success story by a publication called, The Modern Fact, in its research concerning the performance of VAT in small countries.

“The components set out in the Government of the Bahamas’ white paper – A VAT Reforming Tax System– on the face of it, suggested that this country is giving itself a reasonable chance to successfully introducing a VAT Tax.

“Indeed, the design feature proposed for your VAT and purposes it is intended to serve, meet a standards and best practices to be found …across a wide range of countries in which such a tax is now the major form of taxation.

“Firstly, The VAT is intended to be a broad base tax levied at multiple stages of production. It is a crucial essential feature that taxes on inputs will be credited against taxes on output.

“It is in that capacity intended to be designed to ensure that final base of the tax is consumption. In this regard, deliberate provision is being made to shield exports and investments in the Bahamas from incidence of the VAT in the bid to use it elsewhere as an instrument to promote greater efficiency and greater competiveness in your domestic economy,” he said.