The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Bahamas Motor Dealers Association’s (BMDA) president yesterday urged the Government to “roll back” Business Licence fees to the pre-2010 rate of 0.5 per cent, disclosing that his group had to “scrape together” $500,000 to cover this year’s increase.

Fred Albury told Tribune Business, on the eve of the Government’s 2014-2015 Budget, that reducing Business Licence rates would act as ‘an incentive” for Bahamas-based businesses to invest in and expand their operations.

Describing the auto industry as one sector unable to absorb much more taxation, Mr Albury said that if the Government moved to implement Value-Added Tax (VAT), “5 per cent would be the preferred rate and 7 per cent maximum”.

He echoed Rupert Roberts, Super Value’s owner, in calling for the Government to adopt the “New Zealand model” of a low-rate, few exemptions VAT if this was the route it had to go as this would contain “the fewest devils”.

And Mr Albury, in common with many other private sector leaders, also called for the Christie administration to adopt a “multi-faceted” approach to fiscal reform by adjusting existing taxes and implementing “spending caps” to control expenditure. He described such a strategy as “critical”.

The BMDA chief, who operates the Auto Mall, Executive Motors and Omega Motors dealerships, warned the Government to be careful about overburdening the private sector with new taxes and failing to deal with the current system.

“The automotive industry is taxed pretty heavily as it stands. It can’t take much more,” Mr Albury warned to Tribune Business.

“The Business Licence fee, the way it is structured and with the rates they’re at now, it is a deterrent against anyone expanding their business. That has to be looked at and rolled back.”

“If they do that, more business places will be encouraged to expand and it will act like some sort of incentive.”

Mr Albury called for the Government to reduce Business Licence fee rates from the 1.25 per cent his group is currently paying back to the 0.5 per cent levied that was levied on most companies pre-2010.

The International Monetary Fund (IMF) has recommended that the Business Licence fee either be scrapped or amended, and the Government initially, as stated in its VAT ‘White Paper’ of February 2013, mulled doing just that by reducing it to a flat $100 annual fee for all companies.

However, the Christie administration has backtracked from that position, and now plans to keep the Business Licence fee in place at least until it sees the full effect of VAT and other tax/fiscal reforms.

Many in the private sector have complained that the Business Licence fee, as currently structured, is discriminatory due to being based on top-line turnover.

As a result, it penalises firms that have high sales revenues/low profits, or those with low margins, often amounting to a sum greater than their annual profits.

Mr Albury said industries such as automotive, which fell into this category and also had to deal with the further restrictions imposed by Price Control, were hit hard by Business Licence fees.

“This year we had to scrape money together to pay the Business Licence fees,” he revealed to Tribune Business. “My group had to find $500,000. God help Mr Roberts and places like Super Value.”

Still, acknowledging that the Bahamas needs “a tax overhaul”, the BMDA president said: “My feeling is that the New Zealand model is the preferred way to go if it’s going to be a VAT tax, which means a low rate with very few exemptions.

“Trying to keep track of this exemption, that exemption would become an accounting nightmare.”

Backing Mr Robert’s call for a VAT base that was as broad as possible, Mr Albury said this might yield more - or equal - revenues for the Government than the initially proposed 15 per cent VAT.

“We’ve looked at the payroll tax, and while that might suit some, it does not suit others,” he added.

“We’re not going to get 100 per cent consensus on this, as nobody likes paying more taxes, but of we’ve got to do it, the one with the least devils in the bag will be a low rate with very few exemptions.

“It’s the way to go. Five per cent would be the preferred rate, and 7 per cent the maximum.” A low VAT rate would also impose a lower burden on the inventory that the auto industry will have to carry through the tax system transition.

Mr Albury said the Government needed to better enforce compliance with existing taxes, especially real property tax, while tackling government spending was also branded as “very critical”.

Some in the private sector want the Government to guarantee it will either restrain, or cut, public spending, and commit to using all extra tax revenues for deficit and debt reduction, before they sign up to tax reform.

Spending caps and debt ratio limits are also being sought by some, along with guarantees the VAT rate will not be sharply increased within the next few years.

There have also been calls for a Fiscal Responsibilities Act like New Zealand’s, which would force the Government to justify every dollar spent, and require it to get Parliament’s approval before going beyond Budget limits.

“The fear is that suddenly there’s another revenue stream coming into the Treasury, and it becomes a wish list of new items to spend money on,” Mr Albury told Tribune Business.

“They need to reduce spending and any funds coming in apply to debt reduction. Once we get on the path to debt reduction, interest payments will start coming down. We need to get it down to manageable levels and control it at a level the country can deal with.

“You can’t tax your way out of this situation. You’ve got to reduce expenditure and grow the economy. I’d like to see some spending caps built into the Budget. It’s got to be a multi-faceted package.”

But Mr Albury’s fellow auto dealer, Rick Lowe, was yesterday extremely pessimistic that the Government would agree to any spending reform commitments.

“It’s what got us into this position that they don’t want to acknowledge,” he told Tribune Business. “They seem to want to put that on the side.”

Mr Albury, meanwhile, praised the Government for listening to the private sector, although he was uncertain whether this would make any difference.