The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Bahamas should “put off” becoming a full World Trade Organisation (WTO) membership until 2017, a leading private sector executive said yesterday, as this would provide enough time to assess Value-Added Tax’s (VAT) performance.

Robert Myers, the Bahamas Chamber of Commerce and Employers Confederation’s (BCCEC) chairman, told Tribune Business this would give breathing space to determine how much the VAT rate needed to be increased to compensate for the WTO-induced drop in import tariffs.

While any increase in the VAT rate would not need to ‘match’ the cut in import tariffs, Mr Myers said the Bahamas needed to ensure it acceded to full WTO membership on its terms - and not those of others.

He told this newspaper that the still-weak economy meant the Bahamas had to “tread very carefully”, and ensure that it did nothing to further “destabilise” the overall business environment.

“It’s inevitable it will go up because we have to deal with the WTO process,” Mr Myers said of the existing 7.5 per cent VAT rate. “The big thing is: Let’s see what VAT raises, so we know that in the future, when the duty drops by ‘x per cent’, what we have to raise VAT by.”

VAT, as a broad-based consumption tax that also includes services in its base, will likely generate more net revenues that the existing import tariff structure. Thus any increase in the VAT rate may not need to match, proportionately, any cut in Customs Duty rates.

“If you have a 10 per cent reduction in duty, you may only need a 2 per cent increase in VAT, but you will only know that when some historical numbers are established,” Mr Myers explained.

“For every 4 percentage point drop in duty, you raise VAT by ‘x’. It’s not going to be 1:1, it might be 1:3 or 1:4.

“That’s why it’s important to get compliance up and put WTO off until we know the numbers better, and start seeing data from the VAT.”

Ryan Pinder, minister of financial services, who has ultimate responsibility for the Bahamas’ WTO negotiations, previously said this nation was on course to complete the WTO accession process at some point in 2015.

However, he also pledged that the WTO negotiations “will never” interfere with the Government’s fiscal reforms, indicating the membership push would be delayed if necessary to assist the latter goal.

“We would never do anything that is not co-ordinated with the entire strategy of the Government,” Mr Pinder told Tribune Business then.

“We would never do anything inconsistent with the fiscal reforms of the? Government at all. If the best advice is for that [WTO] to be delayed a bit, we’ll do our best to co-ordinate with the fiscal reforms.”

Still, Mr Myers called for the Bahamas to push its WTO accession back by a further 12-18 months, so it could properly assess the impact of VAT and other fiscal reforms.

“In my opinion it needs to be pushed back a year, 12-18 months,” he told Tribune Business. “We need to get VAT running and see what the results are. In my opinion, it should be 2017.

“We need to tread very carefully. Our economy is already on very unstable ground. We don’t need to do anything more to destabilise it.

“I’m not saying we should not accede, but that we should do so in a manner that suits us and our economy, not the WTO and its members. We’re at the end of 2014, and in my opinion, by mid-end 2016 we should start to have some VAT data.”

This should create no problems with the WTO, as Tribune Business sources said its officials had told the Bahamas: “You accede as quickly as you want.” In other words, this nation can choose when it becomes a full member of the rules-based trading regime.

The Ministry of Finance, too, has repeatedly said nothing it is doing with VAT will cut across, or undermine, anything related to the WTO accession process.

But, with a $5.5 billion national debt and $400 million-plus fiscal deficit, many in the private sector are likely to join Mr Myers in arguing that the Bahamas has greater priorities than signing on to the WTO.