The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Government is aiming to increase the Value-Added Tax (VAT) ‘exemption’ threshold for electricity bills by 150 per cent to 500 kilowatts per month, Tribune Business was told yesterday, a move likely to cover 50 per cent of residential customers.

John Rolle, the Ministry of Finance’s financial secretary, said in an e-mail that increasing the electricity monthly consumption threshold to this level would ensure all households whose bills were $170 or less would be ‘exempt’ from having to pay 15 per cent VAT.

Ishmael Lightbourne, a senior member of the Ministry’s VAT implementation team, had suggested that the electricity ‘exempt’ threshold would be set at 200 kilowatts per month. Yet it appears the Government now realises this may be too low, and not relieve the burden on enough low and middle income families.

Mr Rolle, in his e-mail to Tribune Business, said: “Let me correct the information in today’s paper, which quotes the exemption threshold for electricity at 200 kilowatt hours (kwh) per month.

“The Ministry of Finance is now working on a threshold of 500 kwh. In current terms, this would translate into an equivalent $170 per month in energy bills that are exempt, for qualifying households, or on an annual basis a bill of slightly more than $2,025.”

Mr Rolle added that since the VAT exemption was based on the amount of energy consumed, those falling below it would see greater gross dollar savings when the Bahamas Electricity Corporation’s (BEC) tariffs rose.

“The exemption is based on the amount of electricity used. So the dollar savings would increase if the electricity rates rise, as is the case when the surcharge rises,” the Financial Secretary added.

Not surprisingly, Mr Rolle’s comments were swiftly seized upon by the Christie administration’s political opponents and VAT critics, who suggested the planned increase in the residential energy exemption threshold showed confusion within the Government’s ranks.

While conceding that the 500 kilowatt threshold would cover roughly 50 per cent of BEC’s residential consumers, a former FNM Cabinet minister questioned the separate benchmarks given by two different high-ranking officials just days apart.

Phenton Neymour, former minister of state for the environment, told Tribune Business that levying 15 per cent VAT on energy bills would both cut consumers’ disposable income and result in more Bahamians having difficulty meeting their utility bills.

Apart from a likely rise in residential customer disconnections, Mr Neymour said obligating BEC to collect VAT would further strain the Corporation’s already-weak financial position, especially if it had to pay the tax on clients’ behalf.

And he slammed the ministers most closely involved with VAT, namely Prime Minister and minister of finance, Perry Christie, and his deputy, Michael Halkitis, for displaying “a lack of guts” in failing to present the tax reform plan to the Bahamian people at recent Town Meetings.

Noting the different electricity exemption thresholds given within five days, Mr Neymour said: “What this represents again is this government does not appear to have clarity, consistency or a unified approach to the implementation of VAT.

“You have one consultant saying its 200 kilowatts per month, and the Financial Secretary now saying it’s 500 kilowatts.

“However, 50 per cent of residential customers will be required to pay VAT. If you’re bill is $200 per month, it will rise to $230 per month.”

None of this, though, is set in stone, as the Government has indicated that all aspects of the draft VAT Bill and accompanying regulations recently released to the public are up for discussion.

Still, Mr Neymour effectively accused the Christie Cabinet of hiding behind its officials. All recent Town Meetings have been led by the likes of Messrs Lightbourne, Rolle and Grenadian consultant, Pauline Peters, with ministers conspicuous by their absence.

“Not one of the government ministers associated with the Bill has presented a position,” the former minister said. “It’s not just a lack of leadership, but a lack of guts to discuss the matter on the floor with the Bahamian people

“I’m losing respect for them in regard to standing up and presenting the facts to the Bahamian people. They were the ones elected to represent the Bahamian people, but refuse to speak to them.”

Pointing out that PLP MPs were largely silent on VAT, too, Mr Neymour said that “energy bills affect Bahamians more than any other utility”.

He added: “What it will do is definitely increase the number of customers without services; there will be more frequent disconnections of customers.”

While BEC will be able to recover the VAT it will pay on its inputs, via netting it off against the tax collected from customers, Mr Neymour said requiring the Corporation to collect/remit the balance to the Government would further strain it financially.

If customers fail to pay their bill, especially the VAT portion, on time, BEC will be left in the position of having to finance the tax from its own cash flow - further weakening its fragile position.

“It will put a strain on BEC financially to collect these sums,” Mr Neymour told Tribune Business. “BEC will begin to act as a bank for the Government.

“How will the Government compensate BEC for this additional financial burden they will be made to carry? It will require BEC to take on additional disconnectors, and require additional administration at BEC at additional cost, which the chairman has confirmed they cannot afford.

“The Government continues to dig itself into a hole, and demonstrates they have not thought out this process properly.”

BEC’s net loss for the year ended September 30, 2012, has been confirmed at $22.558 million, more than eight times’ the previous year’s loss of just $2.683 million.

The latest financial statements show the extreme difficulties that might be caused if BEC is forced to ‘carry’ customers who do not pay their VAT.

BEC’s accounts payables, which totalled a massive $136.288 million at end-September 2012, consisted largely of sums owed to fuel suppliers and unpaid Stamp Tax/Customs duties owed to the Treasury.

And, more importantly, the Corporation’s accounts receivables at end-September 2012 stood at just over $104 million, some $84.101 million of which were owed by the private sector - businesses and residential consumers.

Mr Neymour, noting that residential customers using over 10,000 gallons per quarter would also have to pay VAT on their Water & Sewerage Corporation bill, said the tax plans for the utility would place a greater burden on taxpayers.

“It’s now coming to light that the Government is increasing the burden on the average Bahamian, and their deception in the earlier introduction of VAT, where they did not clearly indicate the increase in taxation,” he added.

“Now light is being shed and the truth is coming out.”