The Tribune

• Tax Coalition chief brands House blast ‘naive’

• Calls for tax debates to elevate to higher level

• ‘Not worked up’ on 15% VAT ‘doomsday’ fear

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The former prime minister’s attack on VAT’s reapplication to breadbasket foods and medicines was yesterday branded “naive” and “ignorant of the advice” given to his administration.

Gowon Bowe, who headed the private sector’s Coalition for Responsible Taxation (CRT) when VAT was introduced, told Tribune Business that the criticism from Dr Hubert Minnis neglected all the studies showing that a low-rate, broad-based tax was far superior than the present 12 percent model with multiple exemptions and zero-ratings.

And, calling for the VAT debate to be elevated to a higher level, he warned that it was “misleading” - and does The Bahamas “a disservice” - when politicians from all sides make “emotional statements” that are not backed up by acts or data.

Mr Bowe spoke out after Dr Minnis, in his contribution to the supplemental Budget debate in the House of Assembly, slammed the Davis administration’s decision to eliminate VAT-free breadbasket food items and medicine as “heartless and disgraceful”.

Suggesting this would have a “devastating effect on the inner city”, the former prime minister also argued that the VAT rate’s cut to 10 percent would provide the wealthy with tax breaks on products such as caviar and champagne while forcing lower income Bahamians to pay an extra 10 percent to purchase items essential for daily survival.

However, Mr Bowe said this ignored research showing that the best way to mitigate the impact of VAT and other consumption-based taxes on vulnerable Bahamians was via directly targeted social security assistance rather than a complex web of tax breaks and exemptions.

Dr Minnis, whose administration hiked the VAT rate to 12 percent, as well as introducing the exemptions and zero ratings that moved The Bahamas away from the broad-based tax model, did not mention this in his House of Assembly speech.

Dissecting the former prime minister’s statement, Mr Bowe told this newspaper: “Whilst this may seem like a very harsh statement, that’s a position that’s been taken naively with the empirical information and ignorant of the actual advice given to both the Christie administration and his administration on the most appropriate VAT system.

“To argue a case not grounded in empirical data is misleading and unhelpful to educating the population. When political parties make statements without backing them up with some empirical data, it does a disservice to our country.

“I would only ask that whenever they do that, don’t make emotional statements without evidence to support it. When you add exemptions and take the rate to 12 percent, however you look at it in bringing it down to 10 percent with no exemptions, 12 percent doesn’t make it cheaper for the poor.”

Describing the arguments as akin to “shuffling deck chairs on the Titanic”, the Coalition chief said that rather than use tax breaks which also benefit wealthy Bahamians who can afford to pay VAT, the Davis administration was instead planning to “redistribute” the monies collected on breadbasket foods and medicines “to persons on the margins”.

“It’s far better to charge everyone and redistribute Robin Hood style from the rich to the less fortunate,” he told Tribune Business, asserting that the arguments should instead focus on whether the Government will provide the appropriate level of social security support in time.

“I’d much rather charge all and redistribute to those in need so the innocent do not suffer for the guilty,” Mr Bowe said, adding that the Oxford Economics research commissioned by the Coalition, as well as the Compass Lexacon study for the Government as well as Inter-American Development (IDB) modelling had all recommended The Bahamas adopt such a VAT structure.

“Too often we give too much publicity to idle statements,” he added. “We need to get very critical of those who utter nonsense words, and if they are without validity or credibility they should not be rebroadcast or published.

“At least have an informed basis when you make statements. That goes for all persons in positions of authority. We live in a time where it is so volatile that any emotional statement that touches the right channel gets people to close their minds to facts. We have to stop that. We need to have a debate about fact not merely emotions.

“When we start forcing them to participate in a structured manner it stops what I call idle chatter and we get back to a learned position, and that’s what we all have to strive for.”

The Davis administration has justified the planned VAT rate cut, from 12 percent to 10 percent, and the return to a broad-based model that eliminates multiple exemptions on the basis that this will make the tax easier to administer and more efficient. Compliance will likely increase as there is less room for errors and omissions, and evasion, due to the exemption removal.

“Having a complex VAT system does not benefit The Bahamas,” Mr Bowe said. “The simpler it is, the better it is. KISS. Keep it simple stupid.” As for the International Monetary Fund’s (IMF) suggestion that The Bahamas raise VAT to 15 percent to sustain the exemption structure, the Coalition chief added that he was not getting too worked up over it.

“When they talk about the impact on the economy and doomsday predictions, I don’t get too worked up about that,” he told this newspaper. “If done, would it have been effective and efficient? No. Would people have adjusted? Yes. Let’s not go into hypotheticals and set aside the theatrics.

“The empirical data shows that a VAT system with a limited number of exemptions and zero ratings is the most effective and efficient tax system, and most suited to growing the economy on the back of it.

“I think then change in the VAT system to add exemptions and increase the rate beyond 7.5 percent was based on would that benefit the average household as opposed to empirically studying it.” K Peter Turnquest, former deputy prime minister, at the time said the VAT rate hike was needed to pay off $360m in arrears bills for which there was no funding allocated.

Calling on the Government to publish the models justifying the VAT rate cut to 10 percent, Mr Bowe added: “It takes away all the back and forth in Parliament. Are you challenging an empirical study or talking off the top of your head?”