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Former Barbados PM Chimes in on VAT Talks

The country’s proposed Value Added Tax (VAT) has to be a relatively simple structure, with only two rates, few exemptions and a relatively high threshold, according to a regional leader.

Addressing Grand Bahama’s business community, former Prime Minister of Barbados, Owen Arthur said no matter how sound the reasons are for introducing a VAT and no matter how perfect its features are in their conceptual design, “the success of the new tax will depend on the strength and sensitivity surrounding the planning and administration of its introduction.”

“To address this challenge, no effort should be spared to design and to have in place a fully competent VAT implementation unit before the VAT is introduced,” he said.

“The drafting of the legislation for the VAT also has to draw from best practice. In particular, drafts have to make the subject of extensive discussion and refinement and the legitimate concerns of stakeholders have to be embraced and reflected in the bill to be presented to Parliament to secure strong stakeholder sense of ownership of the new tax.”

“A systematic effort also has to be made to deal with the registration of those liable to pay the tax, and to iron out the transitional problems which are sure to arise as one tax regime is replaced by another. One major transitional issue is sure to concern the procedures that are put in to be in place to enable businesses to manage inventories as one tax regime is replaced by another.”

The three-time PM was in town to offer his opinion on the likely impact of introducing a VAT in The Bahamas.

It was under Mr. Arthur’s leadership that the VAT was introduced to Barbados in the mid-90s.

For The Bahamas, the Barbados prime minister said he could not overemphasize how important it is to establish and prove the base of the tax before making adjustments.

“A VAT on a large base that yields more revenue than required can always be adjusted and right-sized,” he said.

“But it is almost politically impossible to start with too narrow a base and to hope thereafter to expand it. Policymakers in The Bahamas will have to contend with and to deal successfully with a number of other issues relating to the incidence and effects of a VAT.”

The Bahamas is one of the few countries that have not yet implemented the tax and the only country in the Western Hemisphere that has not joined the World Trade Organisation (WTO).
The Christie administration has however produced a white paper on the issue, looking very carefully at what Barbados has accomplished.
“For a country whose economic activities and performance are influenced, to an extraordinary degree, by its participation in the global economic arena, it is inconceivable that The Bahamas will be able to indefinitely maintain this ‘odd man out’ status where relating to a rules-based international economy is concerned,” Mr. Arthur said.
“The relevant issue therefore is not that as to whether The Bahamas should become a member of the WTO. It is that as to how best the nation should prepare for and negotiate the terms of its participation in this critical institution and how it should do so while giving equal priority to the other reforms that the forging of such a relationship with the global economy are sure to trigger.”
In Barbados the VAT was intended to yield the same revenue as the taxes it replaced.
The former prime minister said its yield, buoyancy having been established, verified and the fine tuning of the scope of its base was subsequently undertaken.
Its introduction coincided with the implementation of its obligations as part of the Caribbean Single Market and Economy (CSME), to reduce its extra-regional tariffs from a high of 45 to 20 per cent.
He said it also coincided with the OECD Harmful Tax Initiative threat to the functioning of Barbados’ International Business and Financial Sector that helped to reduce the growth prospects of its economy.
In Barbados, the VAT was used to replace 11 forms of indirect taxes, and 44 kinds of fees as a means of raising revenue.

Despite its challenges, Mr. Arthur feels Barbados is seen as a success story.

Written by Jones Bahamas

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