By NEIL HARTNELL
Tribune Business Editor
nhartnell@tribunemedia.net
Any failure to properly implement Value-Added Tax (VAT) and better collect existing taxes will have a “material” impact on the 2014-2015 Budget, a leading accounting firm yesterday expressing hope that the Government’s revenue projections were “conservative”.
KPMG, in its analysis of the Budget, said the $150 million revenues forecast to be earnt from six months of VAT were “only half the picture”, with the Government also seeking big revenue increases at the border and from real property taxes.
Breaking down the Government’s Budget projections, KPMG said it was eyeing a 32.5 per cent year-over-year increase in real property taxes, from $110.613 million to $146.613 million, while Customs and Excise Taxes are both projected to increase by $27 million - growth of 7 per cent and 9.9 per cent, respectively.
Collectively, these three taxes are forecast to generate a $90 million year-over-year revenue increase for the Government, which is likely to be counting on better enforcement and administration.
“The successful implementation of not only VAT, but also collection enhancement measures for property tax, and customs and excise duties, are absolutely fundamental to this Budget,” KPMG said.
“Given the uncertainties of both, we are hopeful the Government has been conservative in its estimates, as any deviation could be material.”
While describing the Budget as “a game changer as relates to revenue enhancement”, KPMG added: “The Budget is almost entirely reliant on meeting the revenue-side projections, with VAT as yet untested, and the success of the Government in collecting more of its existing taxes still very much a work in progress.”
The accounting firm added that the success of the Budget, and the Government’s ability to meet its fiscal target, was also “somewhat reliant on an acceleration in economic activity, with GDP growth pegged at 2.3 per cent”.
It described this as “the highest rate of GDP growth we will have seen in over eight years, but which appears at present to be supported by the level of economic activity and foreign investment the Bahamas is seeing”.
With real property tax collection cited as being as low as 40 per cent, and “not all properties being billed or consistently assessed”, KPMG said improvement in enforcement and collection “cannot come soon enough”.
The accounting firm noted that Immigration fees are projected to increase by $4.2 million or 10 per cent, while dividends and interest income are forecast to jump by $14.9 million almost solely due to the Government’s Bahamas Telecommunications Company (BTC) stake. That is projected to deliver $26.3 million in the 2014-2015 Budget year.
Tourism taxes, meanwhile, are projected to fall by $5.3 million, largely due to the $21.3 million drop in hotel room taxes as a result of the January 1, 2015, removal of the 10 per cent occupancy levy to make way for VAT.
On the latter issue, KPMG said the Government may have to maintain ‘exemptions’ for key industries to protect them and maintain competitiveness.
“There is no doubt that limiting the number of exemptions will make VAT less complicated and easier to administer, and in that respect should save costs for both businesses and the Government, but we should not lose sight of why the exemptions were proposed in the first place,” KPMG said.
“The Bahamas’ economy does not have the robustness of a larger, more diverse economy where the effect of a price increase through taxation can be spread. In a small island economy heavily reliant on certain core business sectors, there is a need to protect those sectors, which may mean maintaining certain VAT exemptions.
“A ripple in a pond is much more visible than a ripple in an ocean, and the effect of a loss of just a few businesses in an island can have a noticeably detrimental effect on employment and GDP. The Government will need to weigh up the savings in the administration of VAT against the potential loss of business and the effect this could have on the economy.”
And KPMG also said it “understands the Government’s rationale” for not reducing import duty rates simultaneously, and in proportion, to VAT.
“At 15 per cent it was possible to reduce import duties, with some margin for error. At 7.5 per cent, however, the margin for error is not there, and without the track record of actual collections from VAT, we believe it conservative to delay across the board duty reductions,” KPMG said.
“Ideally, modelling can take place over the next six months, with some duty relief on certain key items as of January 1, and more substantial relief to come at a later date, perhaps by July 1, 2015. At the end of the day, we as a country have a $500-plus million total deficit to remove.”
Comments
Reality_Check 10 years, 3 months ago
Not one word said here about the urgent need for government to tighten its belt through layoffs of unnecessary non-productive workers in our public sector. Our governments since 1992 (both PLP and FNM alike) have driven us to the precipice and now urgently need to discontinue their practice of paying for votes through grossly bloated payrolls in just about every government department, agency and corporation. At the same time, the efficiency of our government must be greatly improved by hiring well educated and talented Bahamians to replace the numerous dimwits who now hold key positions in our government just because they are in someway politically connected. The UK Government ignored the IMF's recommendations to increase borrowings and taxes as a means of digging itself out of the great recession. Instead, the UK government adopted much needed painful austerity measures that resulted in more than 500,000 public sector workers immediately being laid off. Low and behold, as the UK economy has now turned around much for the better, Christine Lagarde, Managing Director of the IMF, has recently publicly admitted that the IMF had it all wrong and what the UK government did was right. We need to ask ourselves why is it the IMF is not pressing for us to have a smaller more efficient government and to cap our public sector borrowings. We must do what common sense tells us is necessary rather than blindly follow recommendations made by the IMF that will do nothing in the long term to reduce our budget deficits and national debt. One only has to go to www.globalexchange.org/resources/wbimf/… to understand that the IMF's mission is to impose structural adjustment policies (SAPs) on us down the road if we foolishly continue to tax and borrow in order to spend, whether for the short term or for the long term. We cannot afford to have the IMF calling the shots when they, together with their cohorts (the Word Bank, the IDB and the WTO) have a well established track record of destroying the economies of third world/lesser developed countries in a way that allows their first world masters (the U.S. being chief amongst them) to easily exploit the natural resources of others like ourselves. WAKE UP BAHAMIANS! THE GOVERNMENT OF THE BAHAMAS MUST BE PRESSED TO ADOPT SEVERE AUSTERITY MEASURES NOW NO MATTER WHAT THE POLITICAL CONSEQUENCES, OR WE WILL SOON NEVER HAVE ANY TYPE OF MEANINGFUL GOVERNMENT and foreigners will come to own most of our natural resources whether it be our land, our aragonite or whatever.
Reality_Check 10 years, 3 months ago
correct address for the website referred to in this article is: globalexchange.org/resources/wbimf/oppo…
Reality_Check 10 years, 3 months ago
OK - Government's over spending touched on in another KPMG related article in today's Tribune. But the soft "intellectual" talk about these issues is not enough....THE TIME IS HERE FOR THE GLOVES TO COME OFF AS THE GOVERNMENT WILL OTHERWISE REMAIN DEAF TO THE SERIOUSNESS OF THE MATTERS AT HAND!
Reality_Check 10 years, 3 months ago
The economic outlook and revenue raising assumptions made in Christie's recently announced budget have already fallen victim to assertions of unreasonableness by the international agencies like Moody's and S&P. On top of that the IMF is expected to significantly reduced its expectation for the growth rate of the U.S. economy for 2014. Given that most of our tourists come from the U.S., the knock on affect on our economy is obvious. The IMF (while making sure our dumb government keeps it lips on the foreign lending tit) has cautioned Christie that the foreign component of our national debt is going to wreak havoc on the Bahamas when the Federal Reserve starts to raise interest rates. IS CHRISTIE NOW BRAIN DEAD? Halkitis has destroyed his future in politics by kowtowing to Christie's daft policies that put his own personal interests and priorities ahead of the country's well being. COMMON SENSE TELLS ALL OF US THAT SERIOUS BELT TIGHTENING AND DOWNSIZING MUST BE DONE NOW, NOT LATER, NO MATTER HOW PAINFUL AND POLITICALLY UNACCEPTABLE IT MAY BE FOR THE GOVERNMENT.
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