The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Value-Added Tax (VAT) continues to outperform expectations, with the Government still on target to enjoy a net $300-$350 million revenue increase for the 2015-2016 fiscal year.

John Rolle, the Ministry of Finance’s financial secretary, confirmed to Tribune Business that the $269 million figure he previously cited for 2015 first half VAT revenues was a gross - not net - figure.

That figure, which Mr Rolle cited at the Bahamas Institute of Chartered Accountants (BICA) conference in November, caught much private sector attention as it seemed to imply that VAT was an even more successful revenue-raising measure than first-thought.

He explained, though, that while the Budget is forecasting $544.727 million in total VAT revenues for the 2015-2016 fiscal year, this is also replacing some $150-$200 million in other taxes foregone by the Government.

“In this process, you’re looking at replacing at least $40 million in hotel room taxes and import duties,” Mr Rolle told Tribune Business in a recent interview. “You’re replacing a lot of import duties that used to be paid, and were given up to do VAT as of July 1.”

With the former 10 per cent Stamp Duty on most real estate transactions now split into 7.5 per cent VAT/2.5 per cent duty, Mr Rolle estimated that $100 million in former Stamp Duty revenues were now being reclassified as VAT.

“There is close to $500 million or a little bit more in VAT revenues on a line item basis in the Budget for 2015-2016,” Mr Rolle told Tribune Business, “but there’s more than $150-$200 million in revenues that are being replaced.

“On a net basis, the amount [of net revenue increase] is in the $300 million range. The components of the revenue have shifted more to VAT.

“That is a revenue component that can be administered a lot more effectively than a lot of the revenues that are being replaced.”

Mr Rolle’s latter comment refers to the fact that VAT has made the Bahamian private sector liable for collecting and paying the Government’s new 7.5 per cent levy to the Public Treasury.

The private sector is proving a far more efficient, and effective, tax collector than the Government itself. And VAT’s ‘self-enforcement’ mechanisms, which require registrant businesses to maintain a complete transaction ‘paper trail’, is further aiding the Treasury.

Mr Rolle said high compliance levels among VAT registrants, whose numbers have also exceeded government’s expectations, was also helping to beat revenue expectations.

VAT has continued to perform into the 2015-2016 fiscal year, generating $229.5 million for the Christie administration in the four months to end-October.

This, according to the Central Bank, helped to slash the year-over-year fiscal deficit by 57 per cent or $113.5 million, dropping it to $85.5 million as a result of a revenue increase that outpaced the inexorable rise in government spending.

Mr Rolle, though, conceded that the VAT outperformance was not quite as impressive as it appeared.

He explained that the Government’s VAT revenue forecasts were based on 2012 levels of economic activity, and did not account for the expansion (albeit limited) that had taken place between then and 2015-2016.

“We have seen some performance above expectations,” Mr Rolle told Tribune Business, “but that is partly reflecting the fact that when we made estimates of what the collection would be, a lot of the base data submitted was based on estimates reflective of economic activity in 2012.

“We were looking at the economic base in 2012. When you bring that forward to 2014-2015, that is an economic base that is already lower in dollar terms.”

Mr Rolle, meanwhile, said private sector and taxpayer cries for greater transparency and accountability over the Government’s fiscal affairs were “understandable”.

He added that the Ministry of Finance “would put more energy” into explaining how revenues were spent, and the performance of individual Budget spending line items, plus increase the frequency of its reporting.

“That is the starting point in terms of how all the revenues are supposed to be expended,” Mr Rolle said, referring to the Budget’s spending breakdown.

Despite the VAT-induced reduction in the Government’s fiscal deficit, the ‘red ink’ has not been eliminated and the national debt continues to churn towards the $6.4 billion mark.

Mr Rolle, though, said the Government’s plan has always been to slow the rate of national debt increase - something it was now achieving - and then lower the debt-to-GDP ratio.

“Budgetary estimates call for a gradual slowdown in the increase, and then call for a reduction in the debt as a percentage of GDP. That plan has not changed,” he added.