The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Bahamian businesses yesterday branded the International Monetary Fund (IMF) as “out of touch” in calling for “further revenue measures”, including a possible VAT hike, adding: “They need to come live here.”

Ben Albury, the Bahamas Motor Dealers Association’s (BMDA) president, told Tribune Business that new or increased taxes must be “off the table” for foreseeable future given that many residents are “barely making it’ due to the high cost of living and persistent inflation.

Warning that “there’s no way we can handle any more taxes right now”, he was taking confidence from the speed at which Prime Minister Philip Davis KC ruled out following the IMF’s suggestion that increasing the VAT rate was one option available to ensure the Government hits its 50 percent debt-to-GDP ratio target by June 2031.

“I think the IMF needs to try and come live here for six months and see if people can manage any more increases,” Mr Albury told this newspaper in response to the Fund’s warning that “further revenue measures” are essential otherwise the Government’s fiscal goals will be “out of touch”.

“I think they’re out of touch,” the BMDA chief added of the IMF. “It just gets to the point where you cannot tax your way to prosperity. There are too many people barely making it now. There’s no way we can handle any more taxes right now. There’s been increases on boat licence fees, fees across the board.

“Businesses have absorbed a lot, individuals have absorbed a lot. Inflation is tacked on to that. I just don’t see that [extra revenue measures] being possible unless inflation starts to drastically reduce. I’m happy to see the Prime Minister’s comments saying they are aware of that and will not levy that burden on people at this point in time.

“I’d like to see more creativity than just taxes, taxes and taxes. Any tax in any way, shape or form should be off the table for now unless inflation starts to reduce. All you have to do is look at the bill in the grocery store, and you can see the average family,” he added.

“They just did that study from the University of The Bahamas on the extreme high cost of living in The Bahamas. It has, and has always been, that way. At this stage I don’t see it [new and increased taxes] as a viable option.”

There have long been concerns that the recommendations contained in IMF Article IV reports, not just those for The Bahamas but multiple other countries, are mostly theoretical in nature and do not align with or consider the on-ground realities and pressures that many citizens face in their daily lives.

The Fund, in its latest Article IV statement on The Bahamas, gave this nation several revenue-raising options besides increasing the present 10 percent VAT rate as it warned the Government’s tax enforcement and compliance measures by themselves will not be sufficient to hit the fiscal targets that have been set. No mention was made, though, of how high the VAT rate should go

Mark Turnquest, the 242 Small Business Association and Resource Centre’s (SBARC) founder, yesterday echoed Mr Albury’s position as he urged the Government: “Don’t rock the boat” and to leave the present taxation framework undisturbed with no increases or additions.

“There’s no room for any VAT increase at all,” he told Tribune Business. “We cannot absorb the shock of any more tax increases. If they increase VAT, then Customs duties and other related costs have to go down.” Mr Turnquest said the Bahamian private sector has had multiple cost increases heaped on it in recent years, including minimum wage and National Insurance Board (NIB) rises plus sky-high electricity costs.

He argued that businesses now need a three-year break from any major tax or cost increases to “regroup” given that they are “still fighting off inflation and the ‘cost of living’ crisis. “We right now are bracing for uncertainty with Amazon, and uncertainty in shipping and in pricing, and other challenges that companies normally face in business,” Mr Turnquest said.

“We don’t want an unnecessary shock from the Government right now. We know the IMF have all types of psychedelic stuff and recommendations, but we are not concerned about that in the medium and short-term. The Government is not going to take into consideration the IMF report in the medium or short-term. That’s a long-term consideration. We don’t want the hurt.

“Reduce taxation; don’t increase something. If the Government is sensible they will not increase no taxes. They’ll reduce Customs duty. They won’t even look at VAT and any type of minimum wage hike. Keep it a smooth and steady business environment going into the election,” he continued.

“From a business environment perspective, make sure the process of getting a Business Licence is easier this year than last year. We don’t need no barriers or confusion in the process of getting a Business Licence. It’s got to be far better than last year’s challenge. Don’t rock the boat. Keep it same as, same is. All we want the Government to do is fix the roads and infrastructure.”

Both Mr Albury and Mr Turnquest, though, backed one of the IMF’s tax reforms - to switch from the turnover-based Business Licence fee to a 15 percent corporate income tax levied on profits. Three options for extending such a reform across the entire economy were outlined in the Government’s 2023 tax reform ‘green paper’, although any move in this direction is unlikely to happen until after the 2026 general election.

Branding the Business Licence fee as “a killer” for many Bahamian companies, Mr Albury reiterated that it was viewed as both inequitable and distortionary. As a turnover-based levy, it has the ability to tax businesses into a loss or result in them paying more to the Government via this one tax than they make in annual profits.

It also penalises high turnover, low margin companies such as food stores and gas stations, while benefiting high margin, low turnover firms such as those found in the services sector. When asked by Tribune Business whether he would favour a 15 percent corporate income tax over the present Business Licence fee regime, Mr Albury replied: “Absolutely.

“I couldn’t speak to whether 15 percent is the number or not,” he added. “That’s something we have to look at percentage wise. I don’t know what that means for the Government and what that means for businesses, but right now the Business Licence fee being levied on gross revenue is a killer and always has been.

“You have a business with a turnover of, say $10m, and is losing money. I’ve seen years where the Government made more from us in Business Licence fees than we made as a company. It’s something we have asked for for a very long time. It’s been discussed many times before. I would like to see that.

“I think that would be a big relief for businesses as long as it’s not corporate tax along with the present tax [double taxation]. It will be interesting to see what it looks like in the end.” Mr Turnquest backed this argument, adding: “There was always a problem for many medium-sized businesses paying on the gross sales. 

“In one or two years you might have a loss, and have to pay Business Licence based on gross sales. Paying Business Licence on the top end of the income statement, and then having a loss on the bottom, means you have a double whammy. The medium-sized businesses, those making between $750,000 and $1m, didn’t mind paying 15 percent on their net profit.”