Caribbean News Now!

By Scieska Adderley
Nassau Guardian Business Reporter

NASSAU, Bahamas -- The proposed value added tax (VAT) in The Bahamas will “essentially be a sales tax that applies on goods and services,” according to a former Cabinet minister.

James Smith, former state minister for finance, told Guardian Business that a new tax system, including the proposed VAT, would seek to broaden the revenue base and lower the tax rate, which would be much more equitable for The Bahamas.

“The proposal would be for a VAT at about 15 percent but simultaneously with that, you roll back the customs duties, which average around 40-50 percent and at the end of the day, the public will be no worse off in a sense,” he said.

“They will be paying less on imported duties and now the VAT will of course be in places they have never seen before, like services they are getting probably with the exception of medical and education services.”

Prime Minister Perry Christie tabled the highly-anticipated 32-page white paper on tax reform in the House of Assembly on Wednesday afternoon.

The proposals in the white paper have a three-fold objective: To secure an adequate revenue base in support of modern governance; to establish a tax structure that promotes economic efficiency growth, and to make the tax system more equitable.

Smith noted that most of the country’s revenue is derived from customs duties, which is only a tax on goods. However, The Bahamas is a service-based economy.

“The Bahamas is a service-driven economy in the sense that approximately 80 percent of our output is actually services. So purely from a revenue standpoint, we are taxing the smaller part of the economy, which is the importation of goods rather than the production of services, from the point of view of equity,” he shared.

He pointed out to Guardian Business that the government first considered the option of implementing a VAT in 2004 under Christie’s first administration. Therefore, The Bahamas is not “reinventing the wheel and VAT is in place in at least 150 countries around the world”.

“We invited studies from both the IMF (International Monetary Fund) and Crown Agents. At the time, I was in the Ministry of Finance and deployed some of our staff to Trinidad and Barbados to look at what was happening on the ground. They brought back information so now we are at the point where we at least have a white paper to further discuss the implementation of a new tax regime,” Smith said.

The government is looking to introduce a 15 percent VAT, which would take effect on July 1, 2014.

Michael Halkitis, minister of state for finance, told Guardian Business he believes the government will be able to make the deadline. Smith agreed.

“The VAT in The Bahamas could very well be implemented in a shorter space of time for the simple reason that we don’t have a very large manufacturing base where you see the intermediate production. That means with a VAT, you tax in different stages of the production process and we don’t have a very broad manufacturing base,” Smith added.

In fact, Smith believes The Bahamas should have implemented this form of taxation sooner, which may have alleviated some of the burden that the country experienced during the global economic downturn.

“I think during the recession, you’ll find that there is always a sharp decrease in imports simply because unemployment goes up, visitor arrivals go down and the customs taxes are not buoyant enough to keep steady even though the economy is shrinking,” he said.

Republished with permission of the Nassau Guardian

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