The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A former Attorney General has called on the Government to “consider” implementing Value-Added Tax (VAT) at a lower rate than 15 per cent, warning that consumers would likely have to “bear” increased legal services costs.

John Delaney, who served as the Bahamas’ chief legal officer under the former Ingraham administration, suggested that VAT’s expansion of the tax base to include services could give the Government room to introduce its key tax reform at a much lower rate than currently proposed.

Suggesting that the VAT rate could be increased, especially if revenue yields failed to hit projected targets, Mr Delaney told Tribune Business: “It’s worth considering whether it has to be a 15 per cent VAT.

“I don’t know if the Government is considering this now, but with the tax net being expanded appreciably to include services, one scenario might be to go with VAT at 5 per cent and there’s always the possibility to go up.

“If that expanded tax net does not get enough revenue, there’s always the potential to go up. That’s what the Budget is for.”

The Ingraham administration would also have implemented a VAT had it been re-elected along the same timescale being proposed by the Christie administration.

Mr Delaney, too, acknowledged that a VAT would “come with pain”, supporting similar comments made by James Smith to Tribune Business the week before last. “That was very frank and true,” he said of the comments by the former minister of state for finance.

As to the impact on the demand for legal services via VAT’s 15 per cent imposition on attorney billings, Mr Delaney told Tribune Business: “It really depends on who is paying.

“Clearly, in a certain scenario, if it is some high value matter of particular importance to a client, it’s not going to be an issue. But where it would be very difficult is the great majority of the public, who require legal services at some point.

“Perhaps they buy their first home or are trying to improve their situation through acquisition, then it’s another layer of cost. It will be a concern to any end user.”

Mr Delaney added that legal services, and use of an attorney, were a necessity – not a luxury – for Bahamians looking to purchase real estate, safeguard their rights or defend themselves against charges in the criminal courts.

“Most people have to have legal assistance. It’s likely to be a scenario where they have to bear the increased cost,” he told Tribune Business. As a result, the demand for legal services (attorneys) was likely to be largely unaffected by VAT’s imposition.

But Mr Delaney agreed that one area where clients may decide not to use an attorney’s services, as a result of VAT’s extra costs, might be real estate transactions.

And if they chose not to have an attorney conduct a deeds search and help with the paperwork, Bahamians would then expose themselves to the risk of acquiring properties with bad title.

Real estate buyers already have to pay Stamp Duty (up to 10 per cent of the purchase price); realtor’s fees (6 per cent); and attorney’s fees (2.5 per cent), Mr Delaney said.

With VAT likely to be added on top of both legal fees and broker commissions, buyer costs will inevitably increase. On a $250,000 property, and lawyers’ fees at 2.5 per cent, an attorney would receive $6,350 upon completion. VAT will add $952.50 to that.

“If they feel they can’t afford it, they could be exposing themselves to greater risk,” Mr Delaney said of Bahamians who might not use attorneys on real estate deals. “It’s the sort of thing people do with homeowners’ insurance. They can’t afford it, so take the risk themselves.

“The position is that every bill a lawyer issues, and every bill that other professionals issue, it would be another layer of cost to the consumer. That is the way it is when you apply that kind of tax. You come to the position where it will come with pain.”