The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Davis administration last night said real VAT revenues increased by 15.1 percent year-over-year following the New Year’s Day rate cut with the deficit for the 2022-2023 fiscal year’s first quarter slashed by $116.4m.

The Ministry of Finance, unveiling the Government’s financial performance for the three months to end-September 2022, sought to further enhance its case that the VAT rate reduction from 12 percent to 10 percent - together with the elimination of a host of ‘zero ratings’ and exemptions - had delivered increased revenues with a measurement that stripped out inflation’s impact.

Arguing that its reforms had improved “equity in the domestic tax structure”, the Ministry of Finance added: “Inflationary pressures continued to intensify over the quarter, marking July 2022 prices as the highest recorded in The Bahamas in recent years. Accounting for the 7.9 percentage change in inflation year-over-year, real VAT receipts grew 4 percent over the quarter and 15.1 percent over the nine months following the policy change.

“Despite the reduction in the nominal VAT rate, revenue outturn from VAT receipts grew period-over-period by 11.9 percent ($35.2m) to $330.5m for the first three months of fiscal year 2022-2023. The same total increased over the first quarter of fiscal year 2021-2022 by $160.7m (119.3 percent) when compared to the depressed fiscal year 2020-2021 figure of $134.7m.

“Representing 23.4 percent of the Budget target, improved first quarter VAT collections are attributed to improved economic conditions as compared to the year prior during the early stages of the post-COVID-19 economic rebound. Efforts of the reconstituted Revenue Enhancement Unit have also aided in tax administration to support timely tax collections.”

The Government thus conceded that much of the VAT and overall tax collection improvement was driven by the economy’s continued reflation and rebound from the COVID lockdowns and associated restrictions that impacted 2020 and much of 2021. Still, increased income coupled with ongoing spending containment and near-end to COVID-related spending helped shrink the Government’s deficit by some 85 percent during the three months to end-September 2022.

“Central government’s operations for the first quarter of the 2022-2023 fiscal year indicate a narrowing of the fiscal deficit to $20.6m from $136.4m in the year prior for the same period. This outcome is largely due to growth in revenue receipts while expenditure was contained due to the significant easing of extreme COVID-19 fiscal measures,” the Ministry of Finance added.

“Mirroring the continued accelerating pace of the economic rebound, revenue receipts during the first three months of fiscal year 2022-2023 improved by $57.8m (9.7 percent) as compared to the same period of the prior year. At an estimated $654.3 million, total revenue stands at 23.3 percent of the Budget target.

“Year-to-date revenue collections are consistent with pre-Dorian/pre-COVID-19 fiscal revenue trends as evidenced by first quarter 2018-2019 revenue collections of $471.8m, representing 21.5 percent of 2018-2019 total revenue. The positive revenue performance was supported by increases in tax revenue of $54.1m (10.4 percent) to $574.4m (23 percent of Budget) while non-tax revenue firmed by $3.7m (4.9 percent) to $79.9m (25.8 percent of the Budget).”

Breaking down revenue performance into its Budget line items, the Ministry of Finance said: “Taxes on specific services (gaming taxes) increased by $2.3m (22.2 percent) to total $12.8m and 24.2 percent of the Budget target. Improved gaming tax revenue reflects increased activity in the sector as economic and employment levels improve as compared to the prior year when COVID-19 emergency orders remained in effect, limiting business activity.

“Taxes on international trade and transactions broadened by $49.4m (42.7 percent) to $165m during the period compared to the prior year. This rebound is supported by rebounds in the travel industry with the elimination of COVID-19 emergency orders and health & safety restrictions which remained in place during the prior year.

“Reflecting 32.5 percent of Budget projections, performance in this category is largely explained by excise and export duties firming by $23.6m (55.6 percent) to $66.2m reflecting 41 percent of Budget, and departure tax collections in-creased by $26.9m (253.9 percent) to total $37.5m, representing 41 percent of budget largely as a result of improved airlift as the tourism industry rebounds,” the Ministry of Finance added.

“Overall improvements in other areas of international trade and transactions were slightly offset by a $1.2m (2 percent) decline in Customs and import duties, which totalled $61.1m (24.5 percent of Budget) largely owing to tariff reductions.”

On the spending side, the end of COVID-19 restrictions and support resulted in subsidy cuts for state-owned enterprises (SOEs) and reduced social services support. “Government subsidies, which include transfers to government-owned and/or controlled enterprises that provide commercial goods and services to the public, narrowed by $16.7m (14.2 percent) to $100.5m, which equalled 24.6 percent of the Budget,” the Ministry of Finance said.

“Subsidies to public non-financial corporations declined by $20.5m (17.7 percent) to $95.7m. Owing to the ending of emergency orders and the reduced need for COVID-19 support, transfers tightened for Bahamasair ($2.7m); Water and Sewerage Corporation ($4.7m); and the Public Hospitals Authority ($13.4m). 

“Subsidies to private enterprises and other sectors rose by $3.9m (412.4 percent) to equal $4.8m owing to payment of the $4m equity contribution to Baha Mar, suspended during the prior year.” The end to COVID’s pandemic phase also coincided with a near-$42m drop in social welfare benefits.

“Social benefit payments declined by $41.9m to aggregate $6.5m and 12.7 percent of the Budget as COVID-19 emergency orders ended and domestic economic conditions continue to improve, obviating the need for related government support,” the Ministry of Finance said.

“Social assistance benefits, elevated in the prior year as a result of the continued provision of COVID-19 assistance, declined by $41.9m (86.5 percent) to more moderate levels of $6.5m and 12.7 percent of the Budget. The current spend represents a 12.1 percent increase over the first quarter 2019-2020 pre-COVID-19 and pre-Hurricane Dorian social assistance levels of $5.8m as the Department of Social Services prepares to relaunch its RISE social support programme.”

The deficit and debt blowout produced by COVID-19 saw the Government’s debt servicing (interest) payments increase by $10.5m or 11.4 percent to $102.7m for the three months to end-September 2022, representing 18.3 percent of the total Budget allocation.

“Net financing totalled $12.1m, a $142.5m (92.2 percent) decrease in the net liability as compared to the $154.6m experienced in the prior fiscal year for the same period,” the Ministry of Finance added of its first quarter 2022-2023 borrowing activities. 

While the national debt grew at a much lower rate, due to the shrunken $20m deficit, it still totalled $11.167bn at end-September 2022. The Government’s direct contribution to this was $10.775bn.