The Tribune

By NATARIO McKENZIE

Tribune Business Reporter

nmckenzie@tribunemdia.net

The Bahamas’ gross domestic product (GDP) could shrink by $200-$600 million if Value-Added Tax (VAT) is introduced “in isolation”, a well-known doctor said yesterday.

Dr Johnathan Rodgers, during a presentation at the Rotary Club of Nassau, said that if VAT was introduced in the absence of other measures such as debt restructuring, it could drastically reduce economic activity.

“If you increase the price of something, which VAT will do, you will get decreased GDP,” Dr Rodgers told this newspaper. “When the price of goods goes up, fewer people will buy them.

“What will then happen is consumption will go down, meaning that merchants will make less. When merchants make less they invest less, and just the threat of it is causing them to invest less right now, so GDP goes down.

“The bottom line on VAT is, if it is introduced in isolation, that is without any of the other tools, like restructuring of the debt, minimisation of debt and growing the GDP, what will happen is there will be an actual contraction of GDP,” Dr Rodgers added.

“Academic studies have shown that for every $1 of austerity measures, that is every $1 of increase in government taxes and/or $1 decrease in government spending, you get a $1 to $3 dollar decrease in GDP. That’s why you have to do it in conjunction with other things.”

Dr Rodgers said such measures included lowering interest rates; reducing the cost of energy; relaxing exchange controls; revamping the tax structure; and bringing down the cost of real estate transactions to help grow GDP.

“You can’t have an economy where 15 per cent is the transaction cost. It’s way to high. It has to come down,” said Dr Rodgers of Bahamian real estate deals.

“The way to do that is to form a National Land Bureau, which takes the Crown Land that’s available, rezones it and makes that land available to all Bahamians at a reasonable price and a reasonable level of interest.”

Dr Rodgers said the Government could introduce a sales and service tax as an alternative to VAT.

“You could introduce a sales and service tax, introduce it at 2.5 per cent per annum for five years until you go up to 15 per cent. At the same time, bring down import duties 5 per cent per year. At the end of the five-year period you would have a 15 per cent sales and service tax and 10 per cent import duties,” Dr Rodgers explained.