The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A well-known financial analyst has warned that tax evasion could “return to pre-VAT levels” should the Government increase exemptions, while emphasising that growth is “the only solution” to the Bahamas’ fiscal woes.

Kenwood Kerr, Providence Advisors’ chief executive, told Tribune Business that VAT was a vital tool to preventing under-reporting when it came to Business License fee payments, as a firm’s turnovers for both had to tally.

“On the revenue side, we can’t afford to remove VAT period,” he said in an e-mailed reply to this newspaper’s questions. “It minimises tax evasion, as the Business License annual returns must tie back to the sum of the monthly [and quarterly] VAT files.

“Should we begin making items exempt, tax evasion will more than likely return to pre-VAT levels, which will have a negative impact on forward-looking [fiscal] projections.”

Mr Kerr’s comments provide another angle to the argument that the Government should focus on maintaining the Bahamas’ low-rate, broad-based VAT model and not follow through with campaign promises to remove the 7.5 per cent levy on so-called ‘breadbasket’ items, education, health and utility (water and electricity) bills.

Responding to Moody’s assertions that the Bahamas’ fiscal strength is “much weaker” than thought, due to the significantly increased $500 million deficit for 2016-2017, and projected $722 million borrowing, Mr Kerr said the rating agency’s report contained nothing new apart from its surprise.

“This is against a backdrop of two consecutive years of negative GDP growth, and flat growth, along with consistent above normal [government] spending over the last three to four years,” he told Tribune Business

“Moody’s (and perhaps other rating agencies) are essentially giving us a honeymoon period to get our fiscal act together. They want to see, from the current Budget exercise and over the near term, what the new government’s plans and policies are for reviving the economy, curtailing spending and reducing historically high debt levels and creating employment.

“The only solution of these serious problems is – growth, growth We need real, long-term, sustainable GDP growth in the vicinity of 5-7 per cent annually to meaningfully put a dent in unemployment.”

Mr Kerr added: “The question for the new administration is what will they do to achieve this growth? How will they stimulate investor interest (domestic and foreign) to create meaningful, long term jobs, and how will it be different from others before them?

“What kind of economic climate are they looking to usher in to transform the economy of the Bahamas, and improve the future for all Bahamians and bring certainty to our lives?”

Mr Kerr urged the Minnis administration to focus on privatisation opportunities, including going back to the former Ingraham government’s plan of selling off the 49 per cent equity stake in small tranches that the Bahamian capital markets can bear.

The Christie administration cancelled plans to sell a 9 per cent BTC equity stake upon coming to office, instead preferring to ‘take back’ majority Bahamian ownership of the company via a ‘smoke and mirrors’ deal that allowed both itself and Cable & Wireless Communications (CWC) to achieve what they wanted.

Had the 9 per cent stake’s sale proceeded, it would have been valued at around $36-$37 million based on the price paid by CWC. However, BTC’s value is likely to have been eroded by the end of its lucrative mobile monopoly, which generates close to 75 per cent of its revenue, and entrance of competition via Aliv. As a result, its worth will be a lot less in any privatisation exercise.

Mr Kerr said that apart from BTC, the Government’s equity stakes in Alive and Arawak Port Development Company (APD) could also be sold “to raise cash and reduce government’s footprint, expand the capital markets and significantly boost/expand Bahamian ownership of national assets”.

Backing increased public-private partnerships (PPPs) to finance infrastructure development and build skills, he added that the Bahamas needed to maximise Baha Mar’s potential benefits and reduce business and household costs via energy reform.

“Lowering the cost and, in particular, improving the predictability of the cost of energy, along with reliability is critical to fixing the economy,” the Providence Advisors chief told Tribune Business.

“Reduced energy costs can act as an economic stimulus. It creates cash flow at all levels to reduce outstanding debt, increases savings, increases investment, boosts domestic investment and attracts foreign direct investment and increased employment. Addressing the legacy debt will reduce 6-8 per cent of the national debt levels, and gives more breathing headroom.”