The Tribune

• Brands Gov’t ‘modern Marie Antoinettes’ on breadbasket VAT

• Says lower income Bahamians suffering a ‘financial Dorian’

• Handouts plan shows ‘something wrong with our humanity’

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The FNM’s chairman yesterday accused the Government of driving more Bahamian families into poverty, and sacrificing them “on the altar of tax efficiency”, by refusing to eliminate VAT on medicines and breadbasket foods.

Dr Duane Sands, former health minister in the Minnis administration, in a voice note circulated widely on social media branded the Davis administration as “modern Marie Antoinettes” in a reference to the 18th century French queen widely-renowned for her insensitivity to the plight of the less well-off.

Speaking subsequently to Tribune Business, he asserted that imposing 10 percent VAT on medicines and foods such as rice, flour and bread was “a big friggin deal for those barely making it” amid “a fiscal Dorian” sparked by surging inflation that has sent food and gasoline prices skyrocketing.

Challenged to justify the reimposition of such tax breaks, when all studies have backed the Davis administration’s position of keeping VAT zero ratings and exemptions to a bare minimum, Dr Sands said while this may maximise tax revenues it neglects the plight of lower income Bahamians having to now choose when they eat and how much they can afford to buy.

As for the arguments that social security spending was a better way to target VAT relief to the poor, the Free National Movement (FNM) chairman said this was equivalent to giving persons “a hand-out rather than letting them remain independent” by making essential medicines and foods more affordable. He added that “there’s something fundamentally wrong with our humanity” by adopting such a position.

Acknowledging that there may have been some merit to the Davis administration’s decision to return to a lower rate, broad-based VAT when it was taken late last year, Dr Sands said the economic climate had changed so drastically that a rethink was urgently required to mitigate what many are describing as a cost of living crisis for the most vulnerable elements in Bahamian society.

Accusing the Government of “just being tone deaf”, he told this newspaper: “It’s an unfortunate situation to just become stubborn in spite of things that have happened. You might have made a decision, and arguably it was not an unreasonable decision at a particular point, but we now have a drastic claw back in terms of buying power from the war in Ukraine, COVID-induced supply chain challenges, delivery challenges and so forth.

“Oil prices, which impact everything, have gone up. One dollar buying power six months ago may only be at 88 cents now. You say it’s no big deal charging 10 percent VAT on medicines and breadbasket items, but it’s a friggin big deal those barely making it.” 

But Gowon Bowe, who headed the private sector’s Coalition for Responsible Taxation when VAT was introduced in 2015, told Tribune Business on Monday that he has “extreme difficulty” with why some cannot see that zero rating/exempting these goods from the now-10 percent levy “is counter-productive to what the objective is”.

Removing VAT from goods such as flour, corn beef, grits and tomato paste merely gave a tax break to those who could afford to pay the tax, he reiterated, which further worsened the unfairness of what is already a regressive consumption-based tax that imposed more of a burden on low income Bahamians.

Pointing to multiple studies and empirical evidence that all favoured The Bahamas maintaining a broad-based, low-rate and efficient VAT with minimal zero ratings and/or exemptions, Mr Bowe said the consensus was that redistributing what wealthier persons paid in VAT on breadbasket items to the poor via social security assistance was a better, more targeted way of assisting those struggling with the cost of living.

He argued that the ‘VAT on breadbasket items’ debate must be approached “from the point of knowledge, study and information, not uninformed, ignorant and emotional”. Yet, while Dr Sands produced no data to back his argument, he argued that Mr Bowe’s approach was too focused on tax efficiency and the overall economy as opposed to the impact on lower income and more vulnerable Bahamians.

“I think you have to ask: ‘What is the viewpoint?’” the FNM chairman responded. “The viewpoint is the ease of administration and efficiency of tax collection. There’s no question that an across-the-board, one-size-fits-all rate is going to optimise collections. That doesn’t change the fact that VAT is a regressive tax which will be disproportionately imposed on those least able to afford it.

“The Government has made it very clear; they have advised that this is going to drive people to require social assistance. What you are saying is that on the altar of tax efficiency you’re happy to drive more families below the poverty line and to give them hand-outs to make ends meet.... The most vulnerable in the community, if you’re saying you’d rather give them handouts than remain independent, then I think there’s something fundamentally wrong with our humanity.

“Gowon is looking at the net impact on the overall economy. The more efficient the tax is, the more you collect across the board. Fine, but don’t ignore the uneven impact the tax has on the poor compared to the wealthy. That’s the reason why, in 2018, we made a conscious decision to eliminate VAT on breadbasket items.”

Senator Michael Halkitis, minister of economic affairs, last week argued that the former Minnis administration undermined the low-rate, broad-based VAT model because it was forced to increase the rate from the initial 7.5 percent to 12 percent to pay for the zero ratings and exemptions it granted. He added that the Government’s stressed financial position also means that any revenue cuts it makes in one area has to be compensated by increases in another.

Still, Dr Sands told Tribune Business it was “unconscionable” that the Davis administration had effectively made it “more expensive to get healthy” for persons “struggling to make ends meet” by placing 10 percent VAT on all medicines. “There’s no other way to put it. It’s unconscionable,” he asserted.

“Things have changed compared to three, four months ago. The world has been turned upside down. The breadbasket of the world [Russia/Ukraine] is in the midst of a war. We have not yet resolved problems with the supply chain. We see oil prices that are way more expensive than ever imagined, at $6.50 per gallon. This is the equivalent of a fiscal Dorian. It requires that we make the tough decisions.”

Turning to the Davis administration’s decision to restore VAT on breadbasket foods and medicines, Dr Sands added: “The fact you conceived this idea seven to eight months ago, are you able to pivot or are you just stuck? You have to be able to be flexible, you have to be able to respond. If you are stuck like a deer in the headlights, and are unwilling to pivot, you have to question the commitment to lead.”

Urging the Government to “take another bite at the apple”, and “take the political hit” from doing so, the FNM chairman in his voice note likened the Government to the last French queen, Marie Antoinette, who when advised that many of her subjects could not afford to buy bread allegedly responded: “Then let them eat cake.”

The Opposition has long sought to portray the Government as insensitive and uncaring on the VAT breadbasket issue, in hopes of gaining political advantage. Dr Sands’ voice note argued that such history was now being repeated in The Bahamas some 233 years later, where the most vulnerable are “being battered by an economic storm” that projects inflation will this year hit 7.3 percent - the highest level in 30 years.

With many food prices hitting record levels in March 2022, he added: “Despite acknowledging that the most vulnerable are being pushed below the poverty line, like modern Marie Antoinettes, the new PLP administration insists they are not going to ease up on this government-imposed burden.”

Suggesting that the Cabinet has “doubled down”, the FNM chairman said the Government was more interested in obtaining taxes to expand the size of the public sector and fund its travel. “Will nothing get them to see the plight of the people?” he asked. “Never mind the hardship, never mind the pain, never mind the worry.... For the love of God, ease up on the taxation, cut back on non-essential spending. Things are hard for far too many people in The Bahamas.”