The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

An Inter-American Development Bank (IDB) study has shown that Value-Added Tax (VAT) will have a “positive” impact on the Bahamian economy’s growth and employment prospects in the medium-term, a senior official said last night.

John Rolle, the Ministry of Finance’s financial secretary, said that despite the IDB study being incomplete, the ‘preliminary results’ showed the Government’s tax reform centrepiece would also result in reduced inflationary pressures.

“While the IDB study is ongoing, we have seen the preliminary results, which attest to the projected positive economic impact of the fiscal reforms (growth and employment over the medium term), and to the reduced inflationary pressures to which the budgetary consolidation would contribute,” Mr Rolle told Tribune Business.

“Additional historical data is being added to the economic model, which will allow the researchers to fine-tune their results. Afterwards the results of the study will be published.”

Mr Rolle was commenting after the IDB used its October quarterly bulletin on the Caribbean to confirm it is working with the Government on implementing VAT in the Bahamas. It said its study on the new tax’s impact on the economy and wider society was only “underway”.

“The IDB has been working with the Government of the Bahamas to assist with Value-Added Tax (VAT) implementation,” the Bank’s October missive said.

“Using an econometric model, the IDB has provided specific input on the effects of the changes in revenue of the proposed VAT rates and the base on which the VAT will be charged.

“An economic impact study that assesses the effect on prices, economic growth, poverty and income distribution is currently underway. Consultations on the creation of the Central Revenue Agency, which will administer the VAT and select the IT system, are currently underway.”

Despite Mr Rolle’s assurances, the IDB’s comment is still likely to raise eyebrows in the private sector, as it indicates that the true ‘number crunching’ on VAT’s impact on the wider Bahamian economy and society has yet to be completed, and with implementation of the new tax now less than eight-and-a-half months away.

It is also unclear whether the Government internally, via the Ministry of Finance, has completed ‘VAT economic impact’ studies of its own, or whether this work has been done by other agencies, such as the International Monetary Fund (IMF, or external consultants.

A Ministry of Finance press statement earlier this year referenced work done by the IMF and its regional affiliate, CARTAC, on a Bahamian VAT, although no specifics about the nature of their work were released.

One observer who raised such questions was Rick Lowe, an executive with the Nassau Institute economic think-tank, whose own study on VAT’s likely impact on the Bahamas has been belittled by various government officials.

Suggesting that the Government’s moral authority to do this was diminished by the absence of any completed studies of its own, Mr Lowe argued that the burden of VAT collection/administration was being placed on those companies that were already 100 per cent compliant with their taxes.

And, noting the contents of the 2010-2011 Auditor General’s Report, which found that another $95 million in unpaid real property tax was added to the existing ‘sum owing’, taking this to over $500 million, Mr Lowe questioned how the Government expected to collect everything due to it under a VAT.

“It’s a basket case, it really is,” Mr Lowe told Tribune Business. “How do we expect to implement a more convoluted tax system if we can’t administer the basics?”

He added that the experience of other countries that had implemented VAT was that new taxes did not stop there, often being followed by income taxes and other revenue-raising measures.

“It’s a never-ending way to tax people,” Mr Lowe added. “It’s the thin end of the wedge. If we’re not capable of collecting basic taxes, heaven knows, not to mention the underground economy.”

He added that VAT would likely drive more Bahamians to online shopping and trips to Miami, and said of the IDB’s comments on the economic impact study, or lack of it: “How can they [the Government] stand up there and berate anyone who has concerns based on the impact of VAT on other countries in the region, and they’ve not done a study yet? It speaks volumes.

“They berate anyone who stands up and raises questions, and those questions result from government’s lack of information. We’re beeped down as if we’re dummies.

“They’ve [the Government] been forging ahead as if it’s a fait accompli, and haven’t done a cost benefit analysis. Have they considered the impact on businesses close to the edge? Obviously they haven’t. Is it going to destroy the economy and they get less revenue? Is that the Government’s intention?

“If they haven’t done the basics yet, how can they just think they can throw their hands up and say: ‘We can take more money from the citizens?’ It’s unconscionable. I weep for our country.”

Questioning why the Government had allowed “this large swathe” of non-real property tax payers to exist, Mr Lowe said VAT would impose an even greater tax burden on those who were already paying their bills.

“To say we can’t collect the taxes already on the books, and to tax more people who legally do what’s right and pay the taxes they ought to pay, something’s wrong with that reasoning,” he added.