The Tribune

By Malcolm Strachan

THE debate about taxation got ugly last week – with arguments in the House of Assembly and Shanendon Cartwright MP risking being thrown out by the Deputy Speaker. So, what’s the issue?

The current discussion surrounds VAT – and whether certain items should be zero rated to avoid being a particular burden.

You know what this means in very real terms – how much has your grocery bill gone up lately? Now a large share of the current price surge has been down to the combination of supply chain costs and an increase in gas prices, and that has landed right after the current government removed the VAT exemption from breadbasket items. A double whammy.

That loaf of bread you picked up at the store over the weekend has gone up in price in part by having ten percent VAT added back onto it, whereas before there was no extra charge on it.

Now, against that, VAT came down overall from 12 percent to ten percent, but the base on which it was charged became larger as those exempt items were eliminated. So a smaller rate, being charged on more items.

VAT is a regressive form of taxation. Whether you are rich or poor, you pay the same amount on goods and services. That loaf of bread costs the same whether you are a pauper or a billionaire, so the tax doesn’t change according to your ability to afford to pay. Studies routinely show that taxes on goods, such as VAT or Customs duties, hit the poor hardest. There is an element where richer people pay a little more in that they can afford more services, but the nature of the tax itself is unchanging. Someone with three times the income doesn’t eat three times as many loaves of bread.

So in choosing VAT as a significant income producer for the government, we have chosen a form of taxation that by its structure tends to hit the poorest the most. That doesn’t necessarily mean it is a choice that has been deliberately cruel, it comes as a consequence of several factors – but if we are avoiding proportional, progressive taxation such as income tax or corporation tax, then this is where we end up.

Because make no mistake – whether a tax is progressive or regressive, we need to have taxes, because that’s how we pay bills. Anyone who believes differently is welcome to believe the nonsense that the Coalition of Independents promised at the last election, with one leaflet promising free healthcare, free electricity, free internet and a cheque of $100,000 every year to every Bahamian – with not a hint of how such bills would be paid.

No, in the real world, bills have to be paid, and anyone telling you otherwise is leading you astray.

How those bills are paid is the question. And not an easy one to answer. Every option means someone loses out. Credit then to Education Minister Glenys Hanna Martin for being honest last week in talking about how she had struggled with the decision to remove VAT from breadbasket items.

She said: “Personally I am hoping that we will see VAT come off food in general but I think the rationale was – and this is something that I myself struggled with – but the rationale was what the government did was reduce VAT to 10 percent. So, it took the global pressure off the Bahamian people.

“What it did though was reimposed it on breadbasket items and the reasoning was… that exemption was benefitting big restaurants, big food suppliers, etc, and that it was anticipated that whatever hardship that would be immediately faced would be offset by other agencies like the Department of Social Services.”

She went on to highlight the effect of outside pressures such as increased gas prices and supply chain costs but acknowledge that these are “tough times”.

Emerging with less credit in the discussion is her colleague, Economic Affairs Minister Michael Halkitis, who said on Friday that removing VAT on breadbasket items was not feasible at this time.

Of course it’s feasible – we’ve just had breadbasket items exempted not so long ago. Mr Halkitis may think this is the best way to bring in the revenue – but it’s not the only way. It’s a choice.

It is also worth noting that in removing the breadbasket items, the government has not gone back to the seven and a half percent rate that VAT was first introduced at, but to a ten percent rate. So no exemptions and still a higher rate than before.

We should be under no illusions. Our debt is high. Our deficit has been running at levels that are unsustainable. Borrowed money needs to be paid back. And two years of COVID on top of the costs before that of Hurricane Dorian means that the bill is a large one.

Taxation is never popular, but it is necessary. There are also often international pressures from groups pushing for one type of taxation or another. There is an ongoing push, for example, for an international global minimum of a 15 percent corporate tax.

But there remain choices. This approach to taxation is a choice, and one that we feel every time we buy that loaf of bread. We should be honest about that and not pretend it is something that is unavoidable.

On the other side, if that money wasn’t coming in from breadbasket items, it would have to come from somewhere else.

That’s the other half of the discussion. It’s all very well to say take the rates off – but where are you adding tax to balance up the equation?

Praise to those who talk honestly about the hard decisions, we could do with a bit more of that type of conversation in our politics.