The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The FNM’s Value-Added Tax (VAT) ‘exemptions’ plan has been slammed as “completely misguided” by a well-known businessman, who said the private sector had previously “put to bed” all arguments over the Bahamas’ model.

Dionisio D’Aguilar told Tribune Business he was “very dismayed” that Opposition leader, Dr Hubert Minnis, was sticking to the party’s previously-announced position despite warnings to the contrary from numerous credible sources.

The former Chamber of Commerce president joined the likes of the International Monetary Fund (IMF) in suggesting that the ‘exemptions plan’ would amount to a ‘tax break’ for the rich, while also undermining the Bahamas’ ‘broad base, low rate’ VAT model.

Mr D’Aguilar also warned that the FNM’s plan to introduce ‘exemptions’ from food, baby items, healthcare and other ‘breadbasket’ goods would make VAT much more complicated, and inevitably increase business costs associated with compliance and administration.

“I think it’s completely misguided,” he told Tribune Business of the Official Opposition’s plan. “Clearly, he [Dr Minnis] has been advised poorly. Why exempt items for people who don’t need the break? Why give rich people an exemption on baby diapers?

“The Coalition for Responsible Taxation did a study on this, and put this matter to bed. It’s no exemptions and 7.5 per cent VAT, or 300 exemptions and 15 per cent VAT once you start exempting the likes of diapers and baby stuff.”

Mr D’Aguilar, a frequent critic of the current government, joining the likes of the IMF and the FNM’s political opponents in blasting the plan adds to the growing pressure on Dr Minnis on numerous fronts.

However, a defiant Opposition leader last week pledged to “stick with” the plan, arguing that Bahamians “need relief” from the tax burden created by VAT’s imposition.

He argued that tax adjustments elsewhere would compensate for revenue foregone, and promised that, if elected to office, the FNM would conduct “a comprehensive review of the entire Bahamian tax structure”, in a bid to eliminate wastage and find efficiencies.

But, adding to criticism of Dr Minnis, Mr D’Aguilar said: “We, the private sector, did a study on this, and predicted that the way you affect your economy the least, while getting revenue for the Government, is to have a low tax rate and no exemptions.

“He’s [Dr Minnis] so wrong on this. He’s been ill advised. The business community has done this research, and this was the model to raise most revenue and have the least affect on the economy.”

Mr D’Aguilar was quick to emphasise he was not seeking to downplay VAT’s economic impact, but merely stating that the ‘7.5 per cent and no exemptions’ was the best approach.

He likened the FNM’s VAT ‘exemption’ policy to giving blanket import duty and other tax breaks for hybrid cars. Wealthy persons, he added, would exploit such a concession to import hybrid Porsches and BMWs.

“If your intention is to help the poor, there are other ways to do it,” Mr D’Aguilar told Tribune Business, backing the Government’s strategy of expanding social security/services assistance.

“Food stamps clearly help them. Whoever you determine is poor, make them eligible for more food stamps under the FNM. Don’t give benefits to the rich that you don’t have to give. You need to target the people you want to target.”

The IMF, following its two-week stay in Nassau for the Article IV consultation last month, strongly advising against the action now proposed by the FNM.

The Fund instead called for “resolute implementation of the current VAT regime with few exemptions.

“The authorities should resist pressures to weaken the VAT regime’s efficiency through the introduction of exemptions,” it added.

Echoing these sentiments, Mr D’Aguilar warned: “If you give a tonne of exemptions, it [VAT] becomes so complex that it’s difficult to comply and the cost of doing business gets even higher.

“While you think you are giving the poor help on the one side, you have to balance it off by giving the exemptions to the rich, too, and making it harder to do business. Step back and rethink it.”

The Superwash president added of Dr Minnis: “He’s been poorly advised and needs to consult the business community on this.

“This matter has been discussed at length. The best formula is the one we have now. If the IMF says it’s bad, the business community knows it’s bad, listen to them. They know more than a doctor.”

‘Exempting’ products from the 7.5 per cent VAT levy has knock-on consequences for both businesses and consumers.

Companies are unable to recover the VAT they pay on their ‘inputs’ when products they sell are exempt, thus increasing their costs. A broadening of VAT ‘exemptions’ would likely prompt them to increase prices on non-exempt items to compensate for higher costs, hurting the consumer.

The Government would also have to ‘make up’ the VAT revenue foregone by increasing ‘exemptions’ elsewhere in its tax structure.

And, perhaps, most importantly, widespread exemptions would undermine the very philosophy of the Bahamas’ VAT model, which is to have as broad a tax base as possible. In doing so, this ensures the tax rate is kept low.

Increasing exemptions will thus put pressure on the Government to increase the current 7.5 per cent VAT rate, in order to maintain revenues.

The Bahamas was warned against such a ‘trap’ by former Barbadian prime minister Owen Arthur, who on a visit to Nassau revealed that the southern Caribbean nation, by giving into industry and special interest requests for ‘exemptions’, had been forced to raise its own VAT ‘rate’ into the high double digits.