The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Financial Secretary’s decision to reveal that the Value-Added Tax (VAT) rate is likely to rise soon has been questioned by a well-known businessman, who likened it to “sprinkling oil on a fire”.

Franklyn Wilson, the Arawak Homes chairman, indicated that John Rolle’s remarks in an interview with Tribune Business threatened to reignite, and inflame, the previous controversy surrounding VAT just as a national consensus seemed to be developing.

Mr Rolle last week told this newspaper, in response to a Tribune Business question, that there was an “expectation” that the proposed 7.5 per cent VAT rate would have to increase “in the not too distant future”.

The Financial Secretary said the timing, and extent, of any increase could not be determined yet, while other revenue-raising measures could also render a VAT rate rise unnecessary.

However, there is a general expectation - even among many in the private sector - that the VAT rate will have to increase to replace Customs and Excise Tax revenue that will be foregone as a result of the Bahamas’s World Trade Organisation (WTO) obligations.

Still, Mr Wilson implied that Mr Rolle’s comments were premature at this stage of the VAT process. “I don’t quite understand the wisdom in going there,” he told Tribune Business of the rate rise remarks.

“It’s not quite obvious to me why a public servant would speculate about what the Government will do next before this [7.5 per cent implementation]. It’s like sprinkling oil on a fire. I don’t quite understand how that was helpful.”

Gowon Bowe, the Coalition for Responsible Taxation’s co-chair, told Tribune Business last week that Mr Rolle was likely “laying the groundwork” for when the Government would require new revenue sources to offset the WTO-induced border tax reductions.

“The question is: Have they selected the best rate given our obligations on the international trade front?” Mr Bowe told Tribune Business.

“Is the 7.5 per cent rate just to introduce it and get us into an appetite, or is it really a sustainable rate for the foreseeable future? If not, there needs to be analysis from the Government on what they’re seeing as being the long-term, sustainable rate.”

Mr Rolle’s comments are likely to increase concerns among those who had predicted the Government’s first goal was to ‘get the camel’s nose under the tent’ by merely passing VAT on to the statute books. Their fear all along has been that once this was accomplished, the Government would rapidly increase the rate to the original model’s 15 per cent.

Mr Bowe echoed this theme last week, telling Tribune Business: “My greatest fear is we get into a pattern of increasing the [VAT] rate to increase revenue.

“I would not be in favour of them saying raise the rate six months from implementation, or even one year in, as it suggests they [the Government] did not do the best job of understanding” the revenues and spending required to achieve the necessary debt/deficit reductions.

Mr Wilson, meanwhile, told Tribune Business that the VAT/fiscal reform debate would be rendered “academic” if the Bahamas could generate sufficient economic growth.

“Let’s make it work as good as we can,” Mr Wilson said of of the upcoming year. “Make this year the best we can. If we can grow the economy, we will reduce the risk of a downgrade, and the rising tide will lift all ships.

“If we can get economic growth, it will make all these issues academic. The pathway to success is let’s do the things to get growth. We spend so much time talking about things that divide and overheat.”

Mr Wilson also backed the suggestion that the late decision to go with a 7.5 per cent VAT did not leave the Ministry of Finance with enough time to analyse its import tariff rates and adjust them accordingly pre-Budget.

Michael Halkitis, minister of state for finance, has confirmed previous suggestions that the Government will look to adjust some border tax rates between now and January 1, in a bid to avoid what the Free National Movement (FNM) has branded as ‘double taxation’.

“I saw James Smith’s comments, and they were right in the sense that he said, in effect, the Government can only do so much one-time,” Mr Wilson said. “The way the debate played out, and they gained consensus on a 7.5 per cent VAT, the time for the professionals in the Ministry of Finance to work out the rates; the time didn’t exist.”