The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Government’s focus on Value-Added Tax’s (VAT) ‘medium-term benefits’ was yesterday described as “a farce”, with the private sector and consumers more concerned with what happens on July 1, 2014.

Rick Lowe, an executive with the Nassau Institute think-tank, which produced a study showing VAT would have a highly negative impact on the Bahamian economy, said businesses were more concerned about the immediate, near-term effects of tax reform.

He was responding to John Rolle, the Ministry of Finance’s financial secretary, who told Tribune Business yesterday that the initial results from an Inter-American Development Bank (IDB) study showed that VAT would positively impact jobs and growth, and reduce inflation, in the ‘medium term’.

While Mr Rolle did not define that latter term, Mr Lowe said that in economic terms it usually referred to a duration of five-10 years.

He added that this ‘longer term’ outlook also failed to account for the likely immediate inflationary impact of VAT, especially on services, which accounts for 70 per cent of the Bahamian economy.

“I think it’s a bit of a farce to say what’s going to happen in the medium term,” Mr Lowe said of the Financial Secretary’s comments.

“We’re concerned with what’s going to happen the day it’s implemented, the near and immediate term. What about all these countries where it’s caused increased unemployment, the government to lose revenue, all sorts of economic dislocation?

“Why are you talking about what’s going to happen in the medium term, five-10 years away?”

Mr Rolle said the IDB study has shown that VAT will have a “positive” impact on the Bahamian economy’s growth and employment prospects in the medium-term.

He added 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.”

Yet Mr Lowe suggested the fact Mr Rolle did not comment on VAT’s immediate impact was telling.

“I keep saying to people: ‘Watch the language, watch what they don’t say’. That’s critical. They’re masters at it. It’s quite frustrating, honestly,” he told Tribune Business.

“It’s very unfair to the Bahamian citizen, the Bahamian taxpayer. They don’t talk about the immediate cost of living increases that are going to happen.”

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.”