Categorized | National News

“A new VAT Model”

Despite the government’s assertion that the implementation of a Value Added Tax (VAT) increase to 12 per cent was necessary to better the country’s financial state, the Chairman of the Coalition which advised the government initially on the introduction of VAT says the government has departed from the original  model which was agreed.  

Weighing in on the public’s reaction to the government’s 2018/2019 budget , on Radio Love 97  this past weekend,  Gowon Bowe, who represented the  Bahamas Chamber of Commerce  and headed the committee to advise the Christie administration on VAT called the manner in which the increase is being introduced “naïve”.  Mr. Bowe who is also  Group Chief Financial Officer for Fidelity Bank and Trust International Limited said  to increase VAT to 12 per cent with exemptions on many items is a new model.

“I think fundamentally they should have been focused on providing details around the imperical analysis that they would have performed in order to satisfy themselves that one, the economy can sustain the change in the systems;  two, what the impact of that change would, be even if it could be sustained; and three whether or not it is actually predicted to  achieve the revenue growth that they have in budgeted into the actual budget communication. 

“And that if it was done, certainly [it] was not communicated in a very clear manner by the powers that be and I believe that the general population is apprehensive about any changes that do not seem to be supported by proper analysis thought and collaboration between all of the relevant stakeholders,” Mr. Bowe said. 

Speaking with this Journal, and giving a budget analysis, following the Deputy Prime Minister and Minister of Finance Peter Turnquest’s announcement that VAT will increase effective July 1, from 7.5 percent to 12 percent, Mr. Bowe said that a budget when presented should show how the government intends to manage the country. 

“When we look at the budget as presented, ideally what you want to see from governments when they present budgets is the strategy and their long-term view of how they want the economy to grow and more importantly to fund the social needs that are managed by the government.

“I think that when you look at the rate itself, it isn’t one that should be focused on in its significance, simply because there are concessions given on the other direction in terms of reductions of duties. 

“Overall I think that there is an expectation that the ultimate price of goods should not increase by what you would call 12 percent because we are already at 7.5 

“So, the actual incremental change is really only 4.5 percent, and ultimately the cost of living has been increasingly steadily between 2 percent or there about for the past few years. So that’s not a radical shift,” Mr. Bowe said.  

Bowe added that the complication with the actual proposal is whether the new VAT system is prepared to what currently exists.

“Right now, the exemptions are very limited, and the rate is being maintained at a very low rate, with the increase to 12 percent but also the addition of the exemptions, the challenge is then will be the practical application of the new system. 

“Whether businesses be able to do so within the timeframe set out; whether the consumers have, what I would term, tax elasticity and the ability to absorb the increase in taxes 

“Fundamentally and probably the most significant whether the Department of Inland Revenue itself is actually geared up in order to administer this new the system in a manner that will ensure high compliance or at the very least consequences for failure to comply,” Mr. Bowe said.  

Mr. Bowe added that when VAT was being contemplated in its primary stage under the former Christie administration, there was also then a view that it would pull the country into depression; however, he stated that in reality the country was able to absorb it. 

“I won’t say without any challenges, but certainly not with the dooms day prognostications that came out at the time. 

“So, we certainly don’t need to over react to the rate change but what we do need and what we should be demanding government is a very clear understanding of how they arrived at this decision and was this the only alternative that they have put forward. 

“Because while this may be a new administration and they see it as their first budget debate having a significant hand in crafting, government is continuous, and the well-being of the country is one that doesn’t change from year to year or administration to administration,” Mr. Bowe said. 

Responding to opposition leader that the 2018/2019 budget is recessionary, Mr. Bowe said Mr. Davis’ statement cannot be made because of the absence of a proper economic impact assessment 

“Opposition and government have to be careful of accusing one another of the very same sin that they are committing. 

“There is always a dampening effect of any increase in taxation and what remains to be seen is whether this is an overall increase in taxation or all of the measures that are being planned net on net will lead to a very stable level of tax relative to GDP. 

“So, I believe that ultimately there should be less emotive statements that will create panic and pandemonium and more focus on what would be the economic impact analysis that has been performed. And whiles that is never a crystal ball, using things like that in order to guide our conversations and our discussions as oppose to reactive statements,” Mr. Bowe said.

“I think we have to be very careful if you out rightly rejected the choice of government because they were elected by the very same people who may be opposed to a VAT increase,” he said.

“I think ultimately, it’s more important that we hold them accountable to appropriately justify the decision that’s been made.

“And if they are unable to do so then there are different courses of action, in terms of employing them to allow cooler heads to prevail and look for a more palatable solution that can be digested,” he added.

“I think when we get into, what I would call a combatted stance, unfortunately that puts us in bucking heads type scenario and it’s just becomes two stubborn heads fighting against one another.

“It’s more important that we be mature, have the conversation, offer the objective criticism and the critique and then ultimately rely on there being patience and maturity on both sides in order to get to a resolution that all persons can live with.”

Meantime, social media went in overdrive last week in response to the increase, with many creating and circulating memes.

The implementation of 12 per cent VAT begins July 1, 2018. 

Written by Jones Bahamas

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