The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A Cabinet Minister last night pledged to avoid “choking off the economy” in implementing a Value-Added Tax (VAT), telling Tribune Business: “The danger of that is at the forefront of our minds.”

Michael Halkitis, minister of state for finance, promised that the Government would seek a “balancing act” between generating the revenues it needed to sustain itself while also facilitating private sector-led economic growth.

Also pledging to “minimise the impact” from VAT on lower income Bahamians, Mr Halkitis said the new tax’s implementation was “something we have to do” to prevent the Government - and wider Bahamas - from becoming overwhelmed by ever-increasing deficits and a $5 billion national debt.

Responding to businessman Robert Myers, who described business planning for VAT as a “crapshoot” due to the lack of details currently being provided by the Government, Mr Halkitis emphasised that the White Paper was only intended to be an effort to stimulate discussions between the public and private sectors.

Noting that the Government had already met with the Bahamas Hotel and Tourism Association (BHTA), Bahamas Light Industries Development Council, Bahamas Wholesalers Association, and Bahamas Institute of Chartered Accountants (BICA), Mr Halkitis said all these groups had gone away to “give it more thought” and provide detailed VAT submissions to the Government.

Then, armed with these industry positions and assessments of the new tax’s likely impact on commerce, Mr Halkitis said the Government would then “crystallise our position”.

“We hope to have the legislation in Parliament by the end of June, definitely before the summer break,” he told Tribune Business. “We expect to lay the legislation, and take it up in the fall, then have it passed six months before the project is implemented.”

Mr Halkitis said that laying the proposed legislation in Parliament before summer, but not debating it until the fall, would give the private sector and individuals the opportunity to provide further feedback.

The accompanying regulations would “come shortly” after the legislation’s June release.

Mr Myers had noted that “the devil’s in the detail” with VAT and, indeed, most legislative reforms. That detail will likely be contained in the regulations, with the businessmen also saying he wanted to view the accompanying Tariff Act schedule changes to determine what import tariff rates will be.

Promising that a “thorough public consultation” would run up until VAT’s implementation, Mr Halkitis said the Government had sought advice from other countries that had implemented the tax.

Noting that St Lucia brought in its own VAT within 11 months, the Minister said ‘information gathering’ for the centrepiece of the Government’s tax reform plans had been going on for more than a decade, crossing successive administrations.

Noting that studies on a Bahamian VAT had begun with the International Monetary Fund’s (IMF) 2002-2003 report, Mr Halkitis said this nation had no choice but to adopt the reform if its public finances were to be set back on a sustainable path.

“This is based on the fact we have been consistently running recurrent deficits, borrowing hundreds of millions of dollars every year, the revenue base is narrowing because of the concessions we give, and expenditure is growing,” Mr Halkitis told Tribune Business.

“We have to fill that gap, or we will have a cycle of deficits and borrowing that is unsustainable...... The urgency comes from last year, when we ran a deficit of just under $500 million.

“We have to address these chronic holes in our finances. It’s not something that’s been imposed on us; it’s something we have to do to ensure we get in a healthy position.”

With the Bahamas growing, and demands on the Government increasing, Mr Halkitis said the Christie administration was seeking to “have proper revenues in place without choking off business, and doing it in a way that minimises the impact on those that can least afford it”.

Acknowledging the concerns of Mr Myers and others, who fear VAT - if not correctly implemented - would push the economy back into recession via inflation and reduced consumer spending power, Mr Halkitis told Tribune Business: “We’re mindful, we appreciate the danger of that, and it’s at the forefront of our minds as we implement this.

“We know that if we over-tax it can have a choking-off effect on the economy, so there is a balancing act.”

The corresponding reduction in import tariffs, he said, would minimise the inflationary impact on Bahamian living costs, while also protecting lower income groups.

The same objective would also be achieved by making certain products, such as foods and medicine, ‘exempt’ or ‘zero-rated’ for VAT purposes.

The Government, Mr Halkitis said, was open to expanding the number of products attracting a 0 per cent VAT rate during public consultations.

He added that VAT and tax reforms were one part of a four-pronged government strategy, which also involves spending restraint, growing the economy and better collection/administration of existing taxes.