The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Senior private sector executives yesterday warned it was “too premature” to determine whether Value-Added Tax (VAT) will achieve all desired objectives, likening implementation to “driving a used Lada rather than a Ferrari”.

Robert Myers, the former Coalition for Responsible Taxation chairman, told Tribune Business that both the Government and business community would be unable to determine VAT’s likely long-term impact for four to five months.

Although the new 7.5 per cent tax has been alive for just over a month, Mr Myers said a full tax cycle would only be concluded once the roughly 5,500 VAT registrants completed the first filing and payment remittances to the Government by February’s end.

Until that cycle, and several more, were completed, Mr Myers said it was impossible to identify the trends stemming from VAT’s implementation - both its impact on individual businesses and the wider economy, plus whether it was hitting the Government’s revenue targets and reducing the deficit and national debt.

“I don’t think you can answer that question,” Mr Myers replied, when asked by Tribune Business whether VAT implementation had been less painful than many in the private sector had expected.

“I don’t think until we get several months, four to five months, behind us that we are truly going to understand the magnitude of any of the problems; the magnitude of businesses filing; the magnitude of businesses paying; the magnitude of the issues the Government may be having in their own systems; and the magnitude of their ability to enforce the rules, regulations and laws.”

The former Bahamas Chamber of Commerce and Employers Confederation’s (BCCEC) chairman added: “These are not things you are going to know about until you drive off the lot.

“It looks like a decent car, but until you drive off the lot you don’t know if the tyres will fall off, whether the engine will start, and if the seats won’t collapse. You don’t know what’s going to happen.”

Returning from the analogy to present-day Bahamas, Mr Myers told Tribune Business: “You can’t judge it [VAT] right now. It’s too premature. Time is the best teller of all.

“People may file [returns] and not pay. People may not file. They may not file correctly. The Government’s systems may not work correctly. From the private and public sector sides, we have an awful lot of work to do.”

Businesses also said it was impossible to determine the medium and long-term impact VAT will have on consumer demand, based solely on January’s sales figures and year-over-year comparisons.

January is often a relatively soft month for many retail and merchant-based businesses, given that it follows swiftly behind the Christmas spending binge. And it is likely to have been even weaker in 2015 due to the late-year rush to beat VAT’s implementation.

“It’s hard for me to tell,” Dionisio D’Aguilar, Superwash’s president, told Tribune Business. “Even though I get daily sales reports and compare them to prior periods, we’ve opened a new location.

“Overall revenues are up, but that’s because of Charles Saunders Highway. Same store sales are down, but that’s mainly due to the cannibalisation of existing locations. It’s very hard for me to tell if there’s a decrease in sales.

“Sales were well down in the first week of January because people had shopped for the New Year. I think the more relevant comparison will be February to February.”

Mr D’Aguilar said the Government had been “lucky”, and also been “thrown a bone”, by the sharp drop in global oil prices that has impacted pump prices and should result in fall in energy costs. This, he added, would offset VAT’s impact on consumers.

Mr Myers, meanwhile, said much remained to be done to ensure VAT’s compliance rate reached at least 70-80 per cent. He warned that the Bahamas, at all costs, had to avoid “another ineffective, inefficient tax”.

Missing this compliance target would mean “we’ve all failed”, and the former BCCEC chair also urged that Customs Duty and real property tax compliance rates - currently languishing at 45 per cent or below - needed to hit the same heights.

Expressing hope that greater compliance could stabilise or reduce tax rates, and enable the focus to be placed on economic growth, Mr Myers said his companies were “still a ways away” from submitting their January VAT return before end-February.

“I’m just one cog in the system. There’s 6,000 people. Do they have the money to pay the VAT?” he asked. “Or is it going to be the same song and dance as with NIB contributions. ‘Come back to me next week. I don’t have the money now’. That’s the harsh reality in countries like this.”

Mr Myers agreed that many unanswered questions on VAT remained, and added: “I find it difficult to see how they can go out fining people other than those that simply ignored the registration and are looking to evade taxes.

“Anyone else making the effort, they’ve got to recognise the circumstances of implementation were far from ideal. There’s still a tremendous amount they’re changing daily.

“It’s certainly not like driving a Ferrari off the lot; it was more like driving a used Lada off the lot.”