The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Government’s Value-Added Tax (VAT) revenue goals mean that any decision to ‘exempt’ a particular good or service will require it to impose the 15 per cent levy on another sector, a top Ministry of Finance official implied yesterday.

John Rolle, the Ministry’s financial secretary, indicated to Tribune Business that the Government’s goal of generating a net $200 million revenue increase from VAT was the overriding objective that overrode all other considerations.

The Christie administration is aiming to raise about $500 million in gross revenues from VAT, both to replace Customs duties and increase its overall income stream, and Mr Rolle said there was a consequence for every action the Government took in determining the details.

Referring to the Government’s proposal to levy VAT on all commercial electricity bills, and residential bills over 200 kilowatts per hour, Mr Rolle explained that totally ‘exempting’ this area would have tax-related consequences for other sectors of the economy.

Acknowledging that the Government had the option to amend its VAT-related treatment of electricity bills following the planned public consultation, Mr Rolle said: “It’s a broad-based policy framework which the Government is going into the public consultation with, and whatever changes the Government makes to that framework reflect how the Government sees itself relevant to those revenue options.

“One cannot change the framework without impacting revenue goals, and so however the framework evolves will be with those revenue targets in mind.”

This effectively means that a decision to completely exempt all electricity bills from VAT - commercial and residential - would require the Government to make up the foregone revenue, estimated at $30 million - through some other way, namely taxing another sector of the Bahamian economy.

Phenton Neymour, former minister of state for the environment, yesterday suggested that the 200 KW threshold would only exempt 7 per cent of Bahamas Electricity Corporation (BEC) consumers, namely those with bills of less than $75 per month, from having to pay VAT.

However, Mr Rolle pointed out that 15 per cent VAT on business electricity bills would count as an ‘input’ cost, and could be ‘netted off’ against that which companies collected from consumers and paid to the Government.

And he added that the reduction in Customs duties on fuel and BEC’s other imports, which will happen simultaneously with VAT’s introduction, would also pass some savings on to Bahamians.

The Government is also keen to keep the tax base as broad as possible, and limit exemptions and zero ratings to a minimum, to ensure it does not have to increase the VAT rate.

Mr Rolle indicated it was this thinking that had led to the Ministry of Finance proposing to levy 15 per cent VAT on the domestic aviation industry, namely inter-island flights between Nassau and the Family Islands.

He added that ground transportation was proposed as ‘exempt’ because the taxi drivers and jitney operators would mostly fall below the $100,000 registration threshold, while tour operators would still be liable to pay.

The decision to exempt water transportation was intended to assist the mail boat sector and Family Island economies, Mr Rolle said, with making aviation ‘VAT-able’ a “policy decision”?.

“Remember the fact they are VAT-able means it’s also a reflection of the fact it’s a very important tax base,” the Financial Secretary added.