The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A former Attorney General yesterday questioned whether Customs duty/Excise tax rates would be reduced simultaneously with the implementation of a Value-Added Tax (VAT), and warned that the latter’s proposed 15 per cent rate “might be a bit high”.

John Delaney, managing partner at the Delaney Partners law firm, said the Bahamian private sector needed to know when the promised reductions in Customs and Excise taxes would take place, and if there would be an “overhang” between that and VAT’s planned introduction on July 1, 2014.

Identifying numerous questions that have yet to be answered by the Christie administration, and its tax reform ‘White Paper’, Mr Delaney said the fact that VAT would replace Business Licence and hotel occupancy taxes, plus result - at some point - in a reduction in Customs duties and Excise taxes - indicated government revenues were expected to increase.

As a result, the former attorney general said the proposed 15 per cent VAT rate “might be a bit high”. He suggested that the Government instead start at a lower rate and “work its way up over time”, expressing concern that too much money could be “sucked away” from consumers and the private sector once the new tax was implemented.

And Mr Delaney also called on for “more transparency” on what would be included under ‘exempted services’, or industries/sectors where a 0 per cent VAT rate would be levied.

Implying that the ‘devil was in the detail’, he called on the Government to give specifics as to what would be included under “blanket, broad-based” headings such as financial services, health and education services and imports where a 0 per cent rate could be justified on 
“social grounds”.

Speaking to Tribune Business, Mr Delaney questioned whether the proposed VAT “need be as much as 15 per cent, given our existing state of Customs and Excise taxes.

“We’ve heard the representations, that it’s [VAT] intended to replace the Business Licence and hotel occupancy taxes and, at some point, there’s going to be a further repositioning and lessening of Customs duties and Excise taxes.”

“The question is: ‘When will that happen?” Mr Delaney told this newspaper. “Will there be an overhang of the two [Customs/Excise duties and VAT]? That’s obviously very relevant to the discussion. That’s an area of question mark.”

Bahamian businessmen have already privately voiced such concerns to Tribune Business, namely whether Customs duties and Excise taxes will be reduced prior to - or at the same time - as VAT is implemented, or afterwards.

The Government has yet to answer this, beyond saying that Customs duties and Excise taxes will be reduced to ensure there is, in effect, a ‘tax neutral’ impact on the Bahamian private sector.

That means VAT’s introduction will not increase the tax burden on businesses, but some believe the Government will delay reducing Customs and Excise tax duties until it absolutely has to - when its hand is forced by the World Trade Organisation and other trade agreements.

If it chooses this course of action, the tax burden on Bahamian consumers and businesses will rise dramatically, and the costs of living and doing business will also increase.

And the Government would confirm what many in the private sector are already muttering - that its tax reform plans are a ‘revenue grab’, rather than an attempt to position the economy for further growth and competing in a trade liberalised world.

All that remains subject to clarification, but Mr Delaney yesterday said the fact that VAT’s introduction will eliminate Business Licence fees and hotel occupancy taxes, plus reduce Customs and Excise taxes, “suggests there is an appreciation” in the total revenues the Government will collect “and the 15 per cent might be a bit high”.

Suggesting that “there might be some adjustment” to the proposed 15 per cent rate, Mr Delaney told Tribune Business: “The better course would be to start lower and, over time, work your way up. so you don’t suck out too much money at once from the consumer....

“We don’t want to do something - while we must do what is necessary to raise revenue - we don’t want to act in a way that will slow down or hamper the economy, as taxes will have that effect.”

Elsewhere, noting the lengthy list of sectors/industries set to attract a 0 per cent VAT rate, Mr Delaney said the Government needed to clarify exactly what was included under these broad definitions.

Included under ‘exempt services’ are financial services; food and agricultural products that currently benefit from duty free status under the Tariff Act; health and education services; transfers and leases of land and residential buildings; social and community services; and other imports that “can be justified on social grounds”, such as medicines.

“The thing that I think would merit careful consideration by the public and others would be the scope of the exclusions, exemptions - what will they comprise, what will make them up?”

Noting that the ‘exempt services’ headings were “fairly blanket, broad-based”, Mr Delaney said Bahamians “need a greater degree” of understanding in relation to what would attract a 0 per cent VAT rate.

“We do need to have further specifics to know what this means,” he added. “We need more transparency in terms of understanding.”

Again, similar concerns have been raised to Tribune Business by others. Several sources have questioned whether insurance would come under the ‘financial services’ definition and attract a 15 per cent VAT rate. If not, property and auto insurance premiums will increase by 15 per cent.

And Mr Delaney also said this newspaper’s contacts had made “an excellent point” over concerns as to whether the VAT calculation would be based on sums that included Customs and Excise taxes.

These taxes, for many imported products, will not be eliminated - merely reduced. Businesses have queried to Tribune Business whether VAT would be calculated solely on the landed costs (cost of getting product to the Bahamas), or whether it would be based on the landed cost plus Customs/Excise taxes. The latter option would increase the tax burden, and be a tax based upon another tax.