The Tribune

By NEIL 
HARTNELL

Tribune Business Editor

nhartnell@
tribunemedia.net

The Government is losing the public relations battle over Value-Added Tax (VAT) through its “cloak and dagger” tactics, a leading businessman warning yesterday he had to believe the Nassau Institute study’s conclusions in the absence of other evidence.

Echoing some of the conclusions from that report, Dionisio D’Aguilar, Superwash’s president, told Tribune Business it was impossible for VAT not to increase inflation given its likely impact on prices.

And he added that with the Government said to be targeting $200 million in extra revenues from VAT, that sum represented monies that would be sucked away from consumers and the private sector - the productive areas of the economy - simply to fill the multi-million dollar fiscal deficit.

The Nassau Institute report, produced by a former Canadian Revenue Agency auditor, estimated that VAT’s implementation would result in a net $165 million decline in the Government’s total annual revenues.

It added that the private sector would incur a collective $103 million annually in VAT compliance costs, while the Bahamian economy would see a reduction in per annum GDP of between $322 million and $483 million.

The economic think-tank’s study said studies had shown a tax increase equivalent to 1 per cent of GDP resulted in a GDP decrease of between 2-3 per cent.

“Consequently, were the Bahamian government to achieve its goal of increasing tax revenues by 2 per cent of GDP, [there is] evidence which suggests GDP would fall by between 4 and 6 per cent,” the Nassau Institute report warned.

“The Bahamas had a GDP of $8.043 billion in 2012. As a result, were the government to achieve its goal of increasing tax revenue by 2 per cent of GDP, we could expect GDP to decline from $8.043 billion to a range of $7.56 to $7.721 billion, a decline of $322-$483 million.”

In a statement issued late last night, the Ministry of Finance again attempted to dismiss the Nassau Institute study, slamming it as “substandard” and “disconcerting and disingenuous” in trying to “debunk” VAT as a tax reform option.

It also criticised the report as not meeting “any rigorous standard”, but conspicuously failed to release the studies it said had been carried out on VAT, both within the Ministry and by the International Monetary Fund (IMF) in April 2013 and the Inter-American Development Bank (IDB) in August 2013.

The Ministry of Finance said the conclusion that the Bahamian economy would contract by 2-3 per cent were “not rigorously grounded”, and added: “The advice that the Government has have received on VAT and tax reform from the IMF, IDB and CARTAC is sound and speaks for itself.

“This advice is also grounded in the voluminous studies on the impact of tax reform, and in the outcomes that were achieved in the Caribbean. The current experiences in St Kitts and Nevis and Grenada are that these governments collect 80 per cent of the VAT that is due from businesses on the same day that their monthly filings are submitted, and that at least 95 per cent of the total collections are received within a short timeframe afterwards.

“To assume, then, that the Bahamas will only collect about one-third of its potential VAT revenue is not credible.”

Pointing out that the Government had yet to release any statistical data on VAT’s likely impact, plus other vital information on how its key tax reform measure would work, Mr D’Aguilar said the Christie administration was losing the PR battle by default.

Arguing that it was “allowing people to get ahead of them”, Mr D’Aguilar said: “Everybody believes there’s a significant inflationary effect.

“This is classic Bahamas government. There’s no PR. No one has debunked the idea it’s going to have a significant inflationary effect on the economy, and as a result it’s going to drive the economy into recession. When you look at other examples around the Caribbean, it has had an inflationary effect.”

Given the information vacuum that the Government is allowing to exist, Mr D’Aguilar said “everybody is in a state of flux” because they did not know how VAT was going to work, or impact their individual businesses.

Among the other unanswered questions listed by the former Bahamas Chamber of Commerce president were whether VAT would be introduced by its July 1, 2014, target date; what would happen to Business Licence fees and other taxes; whether Customs duties would be reduced, by how much, and whether this would be in proportion to VAT.

And he also asked if VAT was going to be charged on electricity bills, warning there was likely to be “a revolution” in the Bahamas if the Government tried to do this.

“I give the Government an ‘F’ for implementation,” Mr D’Aguilar told Tribune Business. “They’re losing the PR campaign.

“I have to believe the Nassau Institute report in the absence of anything else. I can’t understand how it’s not going to have an inflationary effect, especially for those services businesses that are paying no taxes right now. How are their prices not going to go up? I believe the Nassau Institute report that it’s going to have a detrimental effect.”

Calling on the Government to eschew the “cloak and dagger” approach to educating the Bahamian people and businesses on VAT, Mr D’Aguilar suggested both the politicians and their officials were “scared to tell the truth”.

“They’re trying to put a nice glossy frost on a not so nice story,” he told Tribune Business. “When they introduce VAT, it means a greater proportion of that money is no longer available to the consuming public - it goes to the Government.

“The Government has already increased its spending to where it needs to be. That money doesn’t go back into the economy; it just means the Government is going to borrow less.

“The effect is that you are going to suck $200 million out of the economy to reduce what you borrow. We’re going to be in a period of pain before we can see the light.”