The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Bahamas is doing everything possible to prevent inevitable Value-Added Tax (VAT) implementation “hiccups becoming catastrophic”, a leading businessman yesterday expressing confidence any difficulties would be “minor”.

Franklyn Wilson, the Sunshine Holdings and Arawak Homes chairman, told Tribune Business that the “massive” nature of the reforms meant some VAT implementation issues were unavoidable.

He expressed hope, though, that the extensive debate on tax reform, and ongoing involvement of the private sector in the VAT education campaign, would minimise problems in the run-up to the January 1, 2015, implementation.

However, Mr Wilson said he had “no doubt” that VAT would erode living standards and cause problems for some Bahamian consumers.

And, while the 7.5 per cent tax might “depress the market” in many industries, the well-known businessman urged regulators to be alert for price gouging as some companies would use VAT “to improve their margins”.

Mr Wilson also suggested that VAT would cause “huge” change in how business transactions were conducted in the Bahamas, as tax implications would, for the first time, have to be accounted for.

And, distinguishing between ‘understanding’ and ‘acceptance’ of VAT, Mr Wilson said the latter would likely take “one or two election” cycles to accomplish.

“I have no doubts that there will be hiccups,” he told Tribune Business of VAT implementation. “I don’t see how we can do something this massive, so significant, without having hiccups. It’s inevitable.”

Mr Wilson, though, said the impact from these difficulties would be minimised by a debate that had given all parties an opportunity to express their views on VAT and wider fiscal reform.

The level of dialogue between the private and public sectors, and the former’s continued involvement in the VAT education campaign, had further bolstered the businessman’s confident outlook.

“When you see this, you have to say: ‘What else can we do to reduce the odds of hiccups becoming catastrophic’?” Mr Wilson told Tribune Business.

“I just think there’s a basis for optimism that the hiccups will be minor and, more importantly, the dialogue has been so extensive.”

While the opposition Free National Movement (FNM) had voted against the VAT Bill in the House of Assembly, Mr Wilson said the fact it was not “campaigning to retard it” was also beneficial to a smooth tax reform implementation.

“The good news here is that no one is out there championing the cause, saying this is hell and damnation,” Mr Wilson told this newspaper. “This is the best chance for the country.”

The Government has conceded that 7.5 per cent VAT would likely cause a 3-4 per cent increase in the general price level, and the Arawak Homes chairman acknowledged that all Bahamian consumers would feel the impact via a reduced disposable income.

VAT opponents have warned that the tax will cause reduced living standards, and increase the cost of living, for many Bahamians, with the tax’s regressive nature putting this burden squarely on the middle and lower classes.

“I have no doubt there will be issues like that,” Mr Wilson agreed, adding that this was why it was important for the Government to crack down hard on any ‘price gouging’ exploitation by businesses.

“I’m hearing merchants are pre-empting it,” he added. “There’s no doubt there’s going to be some serious issues, and no doubt some people in the business sector will seek to use this to improve their margins.

“The regulatory people are going to have to be vigilant, and do the best they can to mitigate against that.”

As for VAT’s impact on the private sector, Mr Wilson acknowledged that the tax was likely to reduce consumer demand, affecting profitability and market share.

He argued, though, that it was more important for all businesses to “be playing by the same rules”, as this would maximise VAT compliance and revenues - and ensure public confidence was maintained in the new tax.

“These types of thing have consequences, yes,” Mr Wilson told Tribune Business. “But, at the end of the day, once there’s a level playing field, everyone plays by the same rules, we all have to find a way of doing it.

“This thing might depress the market, but then each company has to try and maintain whatever share of the market they can.

“Profits may be off some, because the market is not as big. Once everyone is playing by the same rules, that’s the key.”

Mr Wilson told Tribune Business that VAT would have a “huge” impact on Bahamian corporate culture, especially when it came to assessing the impact of tax on business transactions.

He added that prior to the recent hikes in Business Licence fees, “business people didn’t think in terms of the tax implications of business transactions.

“I remember that over 30 years ago, I had a business partner from Trinidad, and he mentioned that in the Bahamas people did a transaction on the basis of the deal itself,” Mr Wilson explained.

Yet deals in Trinidad had to factor in taxes and exchange controls, considerations their Bahamian counterparts will now have to increasingly analyse.

Mr Wilson pointed to BISX-listed FOCOL Holdings, of which he is the largest shareholder, and the “shock” it had to absorb when Business Licence fees near tripled.

“When you get that type of shock, you start thinking about your business and what you do best,” he added. “Up until recently, I don’t remember being at Board meetings where tax was discussed. It was not even on the table. These are issues that didn’t exist before."

While the Bahamas’ relatively small size should assist with rapid understanding of VAT, accepting the new tax was another matter.

“It will probably take an election or two before people say, yes, it’s finished,” Mr Wilson told Tribune Business. “Acceptance is different from understanding.”