The Tribune

By NATARIO McKENZIE

Tribune Business Reporter

nmckenzie@tribunemedia.net

THE Bahamas must develop a tax structure “that suits us” according to an ex-FNM Finance Minister, who said that the Government should “rethink” its plan to introduce a 15 per cent Value Added Tax in mid-2014.

Zhivargo Laing, who was the former administration’s minister of state for finance, said during a recent meeting of the Rotary Club of Freeport that the Government’s plan to implement a VAT on July 1, 2014, was “not doable”. “The Government should rethink this. Firstly, I think that the date is not doable, certainly not to achieve the best results. However, more importantly, I believe that we should step back and see the tax reform exercise more fundamentally and profoundly. Many of the considerations that drove us to look at our tax system with jaundiced eyes have faded. In particular, our offshore finance centre has seen revolutionary changes in the international regulatory environment in which it operates. The timidity that it once had to issues of no or low taxes and even secrecy has matured in some ways,” said Mr Laing.

While acknowledging that this nation’s taxation system needs to be reformed, Mr Laing further argued that rather than be “driven”, this nation should effectively chart its own course and develop a taxation structure that “suits us”. “We can, as a mature nation, take account of our needs as a state and the cost of financing those needs, and consider our vision for a dynamic, robust and growing economy and the commercial opportunities that exist to realize that vision, and develop a tax structure that suits us. In other words, rather than be driven, let’s drive our reform to do for us what we wish to do for ourselves within the context of the global environment in which we exist and are likely to exist. We should aim for reforms and should do them sooner rather than later but let us do our best and most considered reforms, so that we can look back at them and be proud of what we did for us,” Mr Laing said.

While the Government is proposing a 15 per cent VAT rate, the hotel industry would be subject to a lower 10 per cent rate. The Government plans to eliminate the 10 per cent hotel occupancy tax rate, replacing it with VAT at the same rate. A 10 per cent VAT rate will also be applied to all hotel food and beverage sales. Companies with an annual turnover of $50,000 or less from having to pay VAT. “There will be a limit to become a VAT registrant of $50,000 turnover per annum, meaning that about 3,798 businesses will qualify as VAT registrants. At this rate, the revenue potential to the Government will be around $200 million. If we return to pre-2008 GFS deficits, this new revenue could totally eliminate our deficit, if the government enjoys levels of growth seen in that period and controls increase in spending, which, I admit is a tall order for governments. If we maintain post-2008 GFS deficits, this new revenue will still mean GFS deficits of $300-$400 million, if all else remains equal; and that would not be sustainable or acceptable,” said Mr Laing.

Mr Laing described the Government’s VAT proposal as a “technocratic proposal”, stating, “It does not have the benefit of broad academic consideration or input. It also lacks commercial consideration, as serious study, thought and consideration by the entrepreneurial community of The Bahamas, including the professional supportive communities of accountants, lawyers, economists and financial experts is lacking.” Mr Laing said: “The proposal does not have, as far as I can assess, a current economic impact study to form the basis of any genuine analysis of revenue need medium- to long-term or spending and fiscal targets medium- to long-term. Such a study would also have concluded what, for the medium- to the long-term, should be the appropriate tax system for The Bahamas, meaning that we should determine what taxes should exist in the modern Bahamas and which should be eliminated. Doing this would mean that we have a vision for the economic and commercial life of The Bahamas and what fiscal system would best support the realisation of that vision. It certainly has not yet been given an organised public education process and deliberation. This means that it remains largely an uncertainty to most of the public.”

He added: “The proposal also lacks important details, especially as it relates to its implementation, though I do believe that the rudiments for such details were emerging as a consequence of certain legislative, administrative and technological reforms undertaken over the last six years and some are alluded to in the paper itself. Tourism and financial services, along with their ancillary supportive services, account for more than 60 per cent of our economy. Applying a VAT to these internationally competitive sectors with their major impact on our economy must be approached with caution. It is not clear whether the proposal on the table has carefully analysed this situation and therefore has accounted for the implications of the VAT to them and the economy as a whole.”