The Tribune

By NATARIO McKENZIE

Tribune Business Reporter

nmckenzie@tribunemedia.net

Bahamian retailers yesterday warned that Value-Added Tax (VAT) could be a “death sentence” for many local businesses, with several industry operators already having told staff to look for new jobs come July 1.

The Bahamas Federation of Retailers in a statement said several of its members had already begun the process of winding down their inventory, and urged the Government to lay out a “firm and serious commitment to fiscal reform”.

The Federation, while it was not opposed to some type of tax reform, said: “Before any additional taxes are approved we believe it is crucial that the Government implements the already passed Freedom of Information Act’ so that the citizens of the Bahamas can readily see how their money is spent.

“Transparency and accountability in a democracy are essential for a modern economy to function optimally,” the Federation added.

“At this time, and without further analysis, it remains far from clear that VAT fits the Bahamas, given regional experiences with implementing the tax. The economy is still fragile following the ‘Great Recession’ and cannot handle severe economic shocks, which will further deteriorate domestic consumer spending or impact the spending of tourists in the Bahamas.

“VAT would be such a shock, as it is the most comprehensive tax reform ever proposed in the Bahamas. It is estimated that expenses will increase by 5-7 per cent for each Bahamian business, and even more for Bahamian households. Given the already high cost of living and doing business in the Bahamas, we believe it will act as a deterrent to growth, development and entrepreneurialism.”

The Federation continued: “More importantly, it will add to the already high unemployment rate at a critical moment in our nation’s economic recovery. For many Bahamian businesses, VAT could be a death sentence, as many businesses have already been struggling to survive for the past few years.

“In fact, several of our members have already begun winding down their inventory and informed their staff to look for new jobs come the proposed July 1 implementation date.

“Funding the public sector to the detriment of the private sector doesn’t grow the country’s economy or the Government’s tax base. It shrinks both and helps no one in the end.”

The Federation said it was “very difficult to justify introducing a new tax when the Government seems unable to collect the existing, outstanding taxes: NIB, Real Property Tax, and Duty.

“Adding new taxes only further increases the cost of doing business for honest tax payers, which is already high by global standards, while those currently evading taxes will find new loop holes to continue their criminal behaviour. Eventually, this will put honest taxpayers out of business, which will negatively impact the Government’s ability to have a strong source of consistent revenue,” it added.

“The rule of law needs to be enforced across the board, thereby generating equitable taxation via the enforcement of existing taxes. For example, property tax and duty are, globally, considered to be two of the easiest taxes to enforce and collect, yet collection in the Bahamas is sporadic, at best. NIB collections should also be enforced better, with stiffer penalties for avoidance.

“The IMF estimate that the Government only collects about 25 per cent of the current taxes it is legally owed. That is, simply put, astoundingly dysfunctional and incredibly low by global standards. It appears that if one knows the ‘right person’, then far too many of our people use that connection to evade taxes and fees owed to their government. This is true for businesses and citizens alike and it must be corrected.”

The Federation warned that VAT could suffer the same fate if the problems with existing taxes are not addressed first. “Efficient enforcement and collection of existing taxes should be aggressively pursued before any new taxes are implementedm,” it said.

“Real property tax avoidance should lead to penalties. If that fails, then property auctions are the global norm. Other measures should be sought for duty avoidance.

“In addition to collecting what is owed, there are many places where the Government could easily cut costs. For instance, BEC, Bahamasair, Water & Sewerage and ZNS are an annual drain on the Government’s revenue and could be more efficiently run by either the private sector or via private-public partnerships.

Calling for government corporations to be “privatised responsibly”, and their sectors deregulated and liberalised, the Federation added: “The money raised should be allocated to reducing the deficit and paying down the debt. This will go a long way to alleviating the recurring deficit and the debt, while reducing prices to consumers through competition.

“Advantageously to our economy, it doesn’t require additional taxation to have this effect.”