The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A Bahamian fraud expert has urged the Government to use some of its Value-Added Tax (VAT) windfall as an “economic stimulus”, and counter a likely initial increase in unemployment caused by the new tax.

Kendrick Christie, president of the Association of Fraud Examiners’ (ACFE) Bahamas chapter, suggested that a portion of VAT revenues be used to finance viable projects whose entrepreneurial backers were finding it difficult to raise capital for.

Conceding that VAT will be a “bitter pill to swallow” for Bahamian consumers, Mr Christie told Tribune Business he agreed with projections that the cost of living would increase by 4-5 per cent immediately after the tax is implemented on New Year’s Day.

Urging Bahamians to assess the impact VAT will have on their disposable income and prepare now, the Grant Thornton (Bahamas) partner said the ACFE was “imploring” the Government to release specific details on the social security programmes it will employ to mitigate the new tax’s impact on the poor.

He pointed out that, while endorsing VAT as the best tax reform option for the Bahamas, the Inter-American Development Bank (IDB) had made this assessment contingent on an expanded social safety net.

While the Government has released numerous industry-specific VAT guidance notes, it has yet to give concrete details on its social security/assistance plans and how much funding will be allocated to this cause.

Based on the experience in Antigua and other Caribbean nations that have implemented VAT, Mr Christie said: “If you look at other jurisdictions, no doubt there will be an increase in the cost of living.

“We already have high unemployment, and people in the hotel industry on a shorter work week. So we’re advising people to look at their discretionary spending, see where they are impacted, and prepare.”

Mr Christie added that VAT’s implementation would be “a significant change to our way of life”, and acknowledged that many Bahamians were “very fearful of the potential impact caused by the cost of living increases”.

With consumer demand likely to fall post-January 1, the ACFE chapter president said the Bahamas was “going to see some increase in unemployment” until consumers adjusted to VAT’s impact.

This, given the low level of Bahamian household savings, will cause problems. “So we implore the Government to outline the social programmes it will put in place,” Mr Christie told Tribune Business.

“It’s very important. The Government has been putting in place information through its guidelines. The various industry associations are getting it, but the IDB report indicated that VAT is good for the Bahamas only if social assistance is put in place.

“There’s going to be some initial increase in unemployment, but the Government needs to outline very specific plans for persons who can prove they have been impacted by VAT. We know there will be some real issues, with persons out there needing some help.”

But, rather than use a portion of VAT revenues to finance social assistance programmes, Mr Christie suggested that some of these monies would be better employed in stimulating the private sector and overall economy.

“We expect some of that VAT money to find its way back into the economy to stimulate hiring,” he told Tribune Business.

“The better way is to provide for an environment of business activity. There’s a lot of people with ideas that don’t have capital, so the way to spur activity is to provide backing for those with business ideas but do not have the capital. We have a lot of those projects that don’t have backing.”

Mr Christie said the fragile state of many Bahamian businesses, even those that were well-known and thought to be performing well, meant the Government needed to do everything possible to minimise VAT’s impact on the private sector.

He warned: “A lot of people don’t understand how tenuous it is for a lot of businesses. People are close to going out of business.

“They have very tight cash flow, even ones that are doing well. Put something on them, kick them hard, and then you will find hundreds of businesses will close.”

Just one company closing could have a multiplier effect for other businesses and their employees, Mr Christie added, given that local firms provided services and products to one another.

“We’re just trying to ask the Government to soften the impact, but we still believe we can achieve their targeted goal of revenue collection,” he added.