The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The former prime minister yesterday “categorically” denied that he planned to “turn headwinds into a hurricane” if re-elected by following the IMF’s recommendation to hike VAT to 15 percent.

Dr Hubert Minnis was forced to assert “that was never the intention” after his successor, Philip Davis QC, revealed that an International Monetary Fund (IMF) technical assessment suggested increasing VAT beyond the present 12 percent rate to maintain the zero rating and exemptions structure. 

The Prime Minister argued that the IMF report provides evidence to support the Progressive Liberal Party’s (PLP) election campaign assertion that the Minnis administration planned to increase taxes if re-elected, although there is nothing to suggest it planned to adopt the 15 percent advice - especially as any immediate tax hike would likely kill-off post-COVID recovery prospects.

Acknowledging that this was one scenario among several, Mr Davis described it as “raising the overall VAT rate to 15 percent while keeping the existing VAT exemptions and leaving in place the scenario where the Government was paying VAT for wealthy foreign companies”.

He added: “I want the Bahamian people to hear me very clearly. When we came to office, analysis performed by the IMF indicated that if the Government didn’t change its VAT structure, VAT would have to be raised to 15 percent. Imagine that.

“Now, I know you all remember that the member for Killarney told the Bahamian people that he went to election eight months early because the country faced ‘headwinds’ and ‘tough decisions’. We said at the time that he wanted Bahamians to vote before he increased their taxes, and this major tax increase appears to be what he had in mind.

“Raising VAT to 15 percent would have turned headwinds into a hurricane. Raising VAT to 15 percent wouldn’t have been just a tough decision, it would have been a terrible decision that would have plunged our economy back into a downward spiral, from which there would be no return.”

This prompted Dr Minnis to intervene, saying: “I want to say categorically there was no intent on the FNM’s” part to raise the VAT rate “at all” had it won the general election. Just because the IMF recommends something does not mean the Government has to follow it.

However, Mr Davis persisted, saying: “The IMF told them they need to do something with the VAT regime and raise taxes to 15 percent. They never told us that during the course of the campaign. There are a lot of flies on walls, and they fly around a lot and land on walls. Flies talk, too.”

Returning to the former prime minister’s language in the election run-up, and the then-Opposition’s claims of tax increases if the Minnis administration was re-elected, Mr Davis argued: “There is now a basis for that belief. That was the IMF telling them to raise it to 15 percent.”

However, he conceded: “Whether they wanted to do it was another matter. That was taken away from them by the Bahamian people. We are pointing out what was recommended. They talked about headwinds and tough decisions, and if you thought about headwinds with a 15 percent increase, that’s no headwind. That would be a hurricane.

“That would not be a tough decision; that would be a terrible decision that would plunge our economy into a downward spiral from which it would never return. That’s all we’re talking about; from headwinds to hurricanes, from tough decisions to terrible decisions. Thankfully, the Bahamian people took care of that.”

Pointing out that the Government had elected to go in the opposite direction by cutting the VAT rate to 10 percent, and returning to the broad-based model with few to no exemptions and zero ratings, Mr Davis said: “We looked at the fiscal reality before us and realised that there was simply no way that increasing the VAT rate to 15 percent just to keep a few exemptions, and for the government to pay VAT for wealthy foreign companies, was a good idea.

“As Bahamians say, we just couldn’t make it make sense. The IMF review of the Bahamian tax system implemented by the previous administration described the kind of exemption-riddled VAT regime, with the Government paying VAT for wealthy foreign companies, as reducing efficiency, lowering revenue and increasing administrative and compliance costs.

“To retain that approach would have been counterproductive and wrong. Making matters worse, the report indicated that exemption and zero ratings are an ‘inefficient way of achieving redistribution objectives’, which is another way of saying that paying VAT for rich foreign companies on select items is detrimental to working class and low-income households,” he added.

“The former Member for St Anne’s was on the news the other day, proudly proclaiming they ignored the experts in setting their VAT policy. But, Madam Speaker, ignoring experts in order to implement a less efficient, more costly system that brings in less revenue is nothing to boast about.”