The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

“Inevitable” increases in the Value-Added Tax (VAT) rate must be tied to corresponding import duty reductions to protect the private sector and consumers, a leading businessman warning the Government could not be given “a blank cheque” on fiscal reform.

Dionisio D’Aguilar said that while the political ramifications meant it was unlikely the Government would push for a major hike in the VAT rate prior to the next general election, increases would be necessary to compensate for reduced import duties if the Bahamas persisted with efforts to become a full World Trade Organisation (WTO) member.

“I think it’s inevitable it’s going to go up,” he told Tribune Business of the 7.5 per cent rate, “because if we intend to join the WTO and eliminate Customs duties, the only way we can raise more money is through VAT.

“We have to tie increases in CAT to reductions in import duties.”

This, Mr D’Aguilar implied, would prevent the Government from imposing an unsustainable tax burden on the Bahamian people and private sector.

Given the likely political fallout, the Superwash laundromat chain’s president suggested the Government would wait to increase the existing 7.5 per cent VAT rate until the Budget immediately after the next general election, anticipated in 2017.

Many private sector observers believe that, once on the statute book, the Government is likely to increase the VAT rate pretty quickly, with the ultimate objective of getting it to the initial 15 per cent target.

John Rolle, the Ministry of Finance’s financial secretary, told Tribune Business earlier this year that a VAT rate increase was likely in the “not too distant future”, although he subsequently backtracked from those comments.

And a rate increase may come even sooner than Mr D’Aguilar projected. For Ryan Pinder, the minister of financial services, yesterday said the Bahamas remained “on pace” to conclude its WTO accession negotiations by year-end 2015.

Speaking to Tribune Business after giving a presentation to the Rotary Club of East Nassau, Mr D’Aguilar said the Bahamian public and private sector needed to build a “groundswell” of pressure to force the Government into wider fiscal reform.

The Christie administration, he added, had shown “no urgency” to enter into such discussions or go beyond the revenue-generating VAT it was readying to implement.

Emphasising that “checks and balances” were needed to prevent the wasteful, imprudent practices of successive past governments, Mr D’Aguilar said: “We as Bahamians take it, take it, take it every time.

“We as Bahamians need to stand up and make ourselves heard. If we don’t say anything and take it all the time, we will get it all the time, which in this case is a major fiscal problem.”

He added: “We need to complain, we need to push and say to our politicians: ‘This is not acceptable any more, and we’re not tolerating the slackness and incompetence that we take every year’.”

Confronting the Government on the need for comprehensive fiscal reform was vital, Mr D’Aguilar said, because “if they don’t get this right, we’re all going to get screwed”.

Speaking on the Coalition for Responsible Taxation’s behalf, he added that the Government had probably hoped that by giving the private sector what it wanted - a simplified, lower rate 7.5 per cent VAT - the private sector would “go away”.

“I have to say the present government has been bold to introduce VAT,” Mr D’Aguilar said. “It was not an easy decision, and I commend them, as you have to address the debt problem.

“The Government has made the bold decision to try and address the debt problem, but they’re not taking us on when it comes to fiscal reform.....

“I think Perry Christie wants to do the right thing; he genuinely desires to get the country into a place where it’s not in such dire fiscal need. But we’ve got to try and put in laws to ensure they are not as irresponsible as they were in the past.”

The Coalition is thus pushing for either a ‘Balanced Budget’ to be enshrined in law, or for the debt-to-GDP ratio to be ‘capped’ at, say, 60 per cent. In the event of emergencies, such as a hurricane, the Government would have to go back to Parliament to seek extra funding.

Yet Mr Christie, in unveiling the 2014-2015 Budget, publicly rejected the advice from the Government’s own consultants, Compass Lexecon, to implement a ‘fiscal rule’ requiring the VAT rate to be increased if debt reduction/debt-to-GDP targets were not met.

Unwilling to concede on this point, Mr D’Aguilar told Tribune Business: “It’s a real concern because there’s no checks and balances on the Government to do what is right.

“They can simply wake up in the morning and decide what is right to do. We have to stop giving politicians a blank cheque to do what they like with our money. A debt-to-GDP cap is the way to go.

“They’re scared to death of putting in a debt-to-GDP cap, and have 100 reasons why it can’t happen, but you can make an exception for hurricanes and potential disasters.”

When it came to the Government’s willingness to embrace wholesale fiscal reform, Mr D’Aguilar told Tribune Business: “They’ve certainly entertained the idea, but there’s no real sense of urgency, as it’s not what they want to do.

“We need to build the groundswell to create this urgency, and hold their feet to the fire. This is not a blank cheque. This is to be real fiscal reform.”