The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The government was yesterday warned off any further tax hikes before 2021, amid continuing private sector concerns it has allowed too little time to adjust to 12 percent VAT.

Edison Sumner, pictured, the Bahamas Chamber of Commerce's chief executive, told Tribune Business that no further tax increases were anticipated "any time soon" given the scale of the fiscal 'medicine' contained in the 2018-2019 Budget.

He added that "some offset", through a reduction in other levies, would be sought if the Minnis administration decided to implement new or further increases within the next three years - especially given its Budget assertion that the 60 per cent VAT rate jump, and other revenue measures, will be sufficient to deliver a "balanced Budget" by 2021.

And Mr Sumner said the private sector "thought more time would have been given" to businesses in adjusting their systems and pricing to the new VAT rate and its multiple exemptions.

While the Budget communication effectively gave 31 days' notice, the Ministry of Finance and Department of Inland Revenue have yet to formally release the 'guidance notes' that detail the VAT transition process with just eight 'working days' to go before the 12 per cent rate's implementation.

Calling on VAT registrants to ensure compliance with the new fiscal measures, Mr Sumner said: "We'll have to adjust to 12 per cent, although we don't like it.

"We don't expect any further increase in the VAT rate any time soon. The Government announced it [12 per cent] will take them through to a balanced Budget within the next three years. We think it's an aggressive timeline, and do not expect them to come back to the Bahamas any time soon to talk about increasing the tax rate."

That, though, will likely depend on whether the Government hits its revenue and fiscal consolidation targets, given that it will be mandated by the Fiscal Responsibility Bill - legislation it plans to enact this summer - to hit a GFS deficit equivalent to 0.5 per cent of GDP (around $50 million) by 2020-2021. The upcoming fiscal year's deficit is projected at $237 million.

Should new or increased taxes be proposed, Mr Sumner said there would "have to be some offset" to ensure Bahamian businesses and consumers were not over-burdened by the Government's revenue demands.

He suggested any "offset" would involve a reduction in one or more other taxes, noting that Bahamians already face a combination of VAT, Customs and Excise taxes, Business Licence fees, real property taxes and a host of other levies and fees.

The Chamber chief executive reiterated that there needs "to be a comprehensive review of the tax structure", which the Government has engaged Deloitte & Touche's UK arm to undertake as part of preparations for the World Trade Organisation (WTO) accession and elimination/reduction of many import tariffs. A corporate tax, possibly on income, is among the options being analysed.

Mr Sumner, meanwhile, said "the same concern with the VAT issue" applied to the narrow timeline granted to the private sector to adjust Point of Sale and inventory systems, and pricing, by the July 1 implementation deadline.

"You gave an announcement and gave us 30 days to comply," he added of the Government. "Now the Budget has been passed the guidance notes have to be published, and you're giving the business community less than two weeks to adjust to these new rules.

"We thought more time would have been given, but in the time left we're hoping the Government will employ some very aggressive strategies to ensure the business sector full understands, and is given answers from, the guidance notes."

Marlon Johnson, the Ministry of Finance's acting financial secretary, previously pledged that the VAT guidance notes will be released this week, with Mr Sumner warning that this was now "extremely important" to ensure a smooth transition.

"The more time people have to digest these guidance notes and information, especially those that have a direct impact on their business, the better," he told Tribune Business. "It gives the business community more time to plan, adapt and adjust."

Mr Sumner said private sector feedback suggested "that the timeline is very tight" to be ready for July 1, especially for large retailers and merchants who have to adjust the pricing and labelling for thousands of items in just a few weeks.

While the business community had been "holding out hope" there would be an adjustment to both the magnitude of the VAT increase and implementation date, the Budget's passage with no changes showed the Government wanted "to move the system ahead quickly and raise the revenue it so desperately needs".

Mr Sumner said private sector concerns over the 12 per cent VAT hike had been exacerbated by the Government's non-disclosure to-date of any economic analysis, or modelling, that forecasts the impact it will have on GDP growth and the wider economy.

The Chamber is seeking to contract Oxford Economics, the consultants it hired to model the impact of a 7.5 per cent VAT prior to the tax's initial introduction in 2015, to conduct a similar study on the rate increase.

Mr Sumner, though, acknowledged that the findings of such a study will be too late to influence the Government's 2018-2019 fiscal plans, and the best the Chamber can hope for is to effect change in the following Budget year.

"We are still very disappointed that the 12 per cent did pass," he told Tribune Business. "And we're disappointed they haven't been able to move the date for implementation. We are happy with other things in the Budget, but the VAT is one of the vexing issues for us.

"The main contention is the VAT increase to 12 per cent without private sector involvement and engagement, and we've not seen any analysis done by the Government and its consultants with regard to the effect of the rate increase and no movement of the date of implementation.

"We hope that once we're complete with our studies it will have some impact on the Budget that follows, perhaps in the 2019-2020 Budget year. We'll be happy to share those results w