The Tribune

By RASHAD ROLLE

Tribune Staff Reporter

rrolle@tribunemedia.net

NO national issue inspired more tension in 2013 than Value Added Tax, with its proposed implementation in 2014 expected to constitute one of the biggest changes to the economy and governance of the Bahamas in years.

Dr Nicolette Bethel, anthropologist and College of the Bahamas professor, suggested to The Tribune that the “hysteria” over VAT in 2013 may be viewed as overblown in hindsight someday.

“For ‘Shakespeare in Paradise’ (a production she headed), we struggled getting interest from people to sponsor us,” Dr Bethel said. “A lot of people were regretful they couldn’t come on and a quarter of the way into our fundraising a lot of people were concerned about VAT and that really had an impact.

“Someone a bit older than me said they could remember the exact same kind of hysteria and discussions when National Insurance was introduced and today National Insurance functions quite well.”

Importantly, she said, the difference between VAT and National Insurance is that “National insurance was an organic, fundamental shift in the way the citizens of the Bahamas were to be taken care of. VAT is not that. No one even seems to want VAT.”

After years of VAT talk by government figures, academics and businessmen, in January, Financial Services Minister Ryan Pinder hinted that VAT would be brought on stream when he told members of the Rotary Club of Nassau that 85 per cent of businesses would be exempt from VAT if it were introduced, adding that as the main form of taxation, VAT could generate an extra $100 million in annual revenue for the government.

Little more than a week later, former FNM State Minister for Finance, Zhivargo Laing, told Tribune Business that because of the government’s heavy deficit spending during the recession, the FNM viewed VAT as an “urgent priority” and planned to implement it within “two to three years” if reelected in May 2012.

Furthermore, during his February tabling of the much anticipated White Paper on tax reform in the House of Assembly, Prime Minister Perry Christie finally announced that VAT will be implemented at a rate of 15 per cent, with the hotel industry subjected to a lower 10 per cent rate.

“Such a VAT rate, in combination with the other reform proposals, would ensure that government will have access to adequate revenues streams for the future,” State Minister for Finance Michael Halkitis said, adding time and time again in 2013 that something must be done to lower the national debt, decrease the country’s potential for credit downgrades and exchange rate changes and prevent possible reductions in public spending and even employment.

John Rolle, Financial Secretary, became the government’s public face for VAT implementation in 2013, explaining in the many interviews and presentations he gave that the current tax system can no longer sustain the country because it is too narrow.

VAT, he said, would be a broad source of government revenue because it taxes goods and services equally.

And when VAT comes on stream, experts explained, excise tax rates and custom duty rates will decrease, with the latter being consequential to the Bahamas’ efforts to gain entry into the World Trade Organisation (WTO).

Although it was in February that the government announced it was seeking to implement VAT by July 1, 2014, the wave of national attention only shifted toward VAT after the hype of the 40th anniversary of Independence died down, Dr Nicolette Bethel believes.

Accordingly, financial experts were the first to react to the news, with many applauding the government’s efforts to pursue tax reform while emphasising that enough time must be set aside to educate the public and that ideal conditions (like a credible revenue collection system) must be created before implementing the new tax system.

Expressing similar sentiments, Dr Bethel said: “My personal concern is this gap between policy makers and policy implementers. There’s not enough understanding in cabinet over the civil servants.

“People who work don’t have what they need to do their work. They don’t have the tools, the support system, the recognition you need to make your job work.

“I’m not at all sure the policy makers have even begun to consider this issue. VAT implementation will need an entire support system but I’m not sure it’s there. And that’s where the government’s services is extremely deficient.”

Meanwhile, an avalanche of businessmen and businesswomen told The Tribune throughout 2013 that VAT will wreak havoc on their businesses.

In the political arena, the Free National Movement (FNM) attacked the government’s “aggressive” VAT timeline while the Democratic National Alliance (DNA) called on the government to consider another revenue source.

Amid growing tension, the government launched a public education campaign that was lauded by some and criticised as insufficient by others.

And as ordinary Bahamians discussed among themselves what VAT may mean for their lifestyles, surveys and petitions were created and town hall meetings were hosted by the government, all serving as outlets for Bahamians to express what amounted to a generally pessimistic viewpoint toward VAT.

Reaction to VAT was captured in the art and entertainment worlds as well where cartoonists created images capturing the increasingly negative cultural mood and some of the country’s most popular social media performers lampooned VAT reactions through YouTube videos that were big on the sarcasm that came to define much of the Fall’s VAT commentary (like this comment a Bahamian on Twitter wrote just days ago: “Bahamas, this is your last VAT free Christmas. Are you ensuring that the people you love have the things they want this holiday season?”)

Despite the government’s logic for implementing VAT, Dr Bethel said one reason for the concern in 2013 is that the government failed to adequately explain how VAT will function.

“Some of the basis of the hysteria was that the PLP is putting it in and some of those that are opposing it are FNMs, but that would just be reversed if the FNM was in power,” she said, adding: “But the real problem is not necessarily the VAT. Some of us are not against VAT and not against changing tax structure, but according to the time-line we’ve been given, we have six months.

“The time-line is unrealistic. There’s still no solid ground on which to stand. I heard we will get 15 per cent VAT but there’s still all this talk about maybe 10 per cent, or maybe another number. VAT has been very weakly introduced.

“The broadness with which it has been presented is a problem. We hear 15 per cent tax rate but we don’t know how we are going to pay it, where we are going to pay it.

“Who collects it? If you move the tax collection points from Customs, who will do the collecting and how will they do it?

“What recourse does the government have when persons aren’t able to pay their money? VAT implementation may be like the Obama health care chaos.”

Referring specifically to the pressure placed on the government by international agencies to implement VAT, she said: “When you do something under duress, in colonial and post-colonial societies, the results are generally disastrous.

“When forced to make changes that are not organic, there are all kinds of consequences that surprise you and not in a good way because you are proposing something for which there is no context and no grounds.

“I’m sure we can come up with a different tax structure that works for us like Stafford Sands came up with a tax structure that served us for 50 years.”

In some ways, the narrative of VAT in the Bahamas merely began in 2013. Its story is far from finished. It is expected to remain high on the national consciousness in the new year.