The Bahamas Chamber of Commerce Employers Confederation (BCCEC) through their Coalition for Responsible Taxation made a presentation on alternatives to Value Added Tax (VAT) at Change Ministry’s Vision Empowerment Seminar on January 18.
Speaking to an audience of over 150 concerned citizens, Dennis Lightbourn, President of the Abaco Chamber of Commerce and member of the Coalition, presented “VAT and The Bahamas – Are there Alternatives?”
He explained that the Coalition’s purpose is to understand and examine what implications proposed tax legislation will have on the macroeconomic climate of The Bahamas.
He added that they seek to identify what specific tax concerns each sector of our industry has and how to best address these concerns within the private sector or through Government dialog and to encourage proactive, cooperative, collaborative and actionable dialog between Government and Private Sector.
He said the Coalition will then seek to advise the Private Sector and the Government on means to implement, train, fund, educate and market responsible tax laws and regulations.
He said the first thing that we need to look at is the July 1st, 2014 Implementation Date and there are many who feel the date needs to be delayed to ensure administrative readiness.
Mr. Lightbourn said the next they looked at was the fact that VAT will increase the cost of goods and services across the nation causing inflation. “I think we all realize and certainly the coalition believes that prices will go up.”
He added that many persons believe it is a business tax and they don’t need to be concerned with it but in the end the “cost is borne by you, the customer.”
Another concern he said the Coalition had is compliance and the collection of VAT and all Government revenue. He said we all know this is a problem in The Bahamas.
He said he does not envy the government’s position in having to make a decision that will most likely have an adverse effect on those least able to handle the increase in cost of living. “Improper handling of implementation of VAT or any other system of taxation may push these people over the edge.”
He said the Coalition’s other concern is that we are going to end up with a cash-based informal economy developing which will be counter-productive what the government is trying to achieve. “Why report your sales when you have to collect VAT? People will try not to be compliant.”
Another concern is that a monthly return schedule may be too onerous. “Our feeling is that monthly is going to be difficult to manage and may cause overheads to go up with a VAT.” He suggested may quarterly would be a better schedule.
“We are past the point of being told things. My mother and father used to tell me things and that’s okay – I don’t have a problem honoring my mother and father – but our elected representatives are in a position to make serious decisions on our behalf and I think we as a people deserve the respect of being talked to, and explained things to, and asked things as opposed to told things.
“I believe everyone in this room is mature enough, educated enough and savvy enough to understand what is going on and to understand the solutions and alternatives and understand our economy if it’s presented in the right way.
“We are the people and you do work for us and you want to do something on our behalf – we put you there to do something on our behalf – but please, ask us, explain to us and get our permission to go forward.”
Another concern for those who offer credit to customers is paying VAT on unpaid invoices. The Coalitions feels that VAT should not be payable on unpaid invoices. So the business has to not only pay their supplier for the goods sold as well as all other monthly expenses, but he also has to pay VAT whether he collected it or not.
As it is understood the business pays VAT on an invoice when the cycle is due whether the customer has actually paid it or not.
There is a provision that if the business is never paid that they can go back to the government and seek an adjustment when they are forced to write off bad debt, but in-between that time he is carry the weight of all those costs until he collects.
The alternative is cash on delivery (COD) which will in the end hurt many businesses and slow down the economy. Many businesses rely on the facilitation of credit.
Existing inventory is a major concern especially for those who have millions of dollars in inventory. Businesses will have to run their inventory down or being faced with the challenge of becoming uncompetitive as they are forced to add VAT to a product they have already paid the full customs duty rate on.
He said the Coalition is concerned whether VAT will create a disproportionate burden to Family Island businesses and consumers. Mr. Lightbourn noted that he thinks the government has taken this into consideration and will not charge VAT on local freight service, and he thanked them for this concession.
He said that private sector training and awareness is something we all need to be a part of as individuals and as businesses; “we need to know what is going on and we need to plan and prepare.”
He said he is aware that the government has contracted a software company that will set up the program that the government will use to manage and administer the VAT. The business community is concerned because they will need to have software and systems that will work with the governments system.
“Getting more money in revenue is one thing but if they continue to spend more than they collect it really doesn’t matter what you make,” he said. There needs to be austerity and budget cap measures taken by the government in conjunction with any new tax regime.
He said it’s necessary to meet with the government, and that the Coalition has engaged them in meaningful dialogue at both the technocrat level as well as at the ministerial level. He said the government has said they are open to hearing alternatives and what would be the best way to do this.
Members of the Coalition, while having various opinions, have come to a consensus on some common concerns some of which went far beyond VAT.
The Coalition agreed that reforms are needed across the board starting with Financial Reporting Systems. Government should allow financial decisions to be made based on timely accurate information and present that data in a way that we can all understand.
He said another suggestion is to introduce budget caps. The government should establish, agree and approve limits to budget spending and then manage to them and should only be increased by Parliament acting on advice from Cabinet.
“Part of the frustration we have in the private sector is the lack of meaningful information that we can work with, understand and analyze so we can make suggestions and give meaningful input. I think the time has come that we need to enact a Freedom of Information Act. This is the public’s information and data and it should be in the open.”
Mr. Lightbourn said that he is hearing “ridiculously low numbers – that we collect only 25 to 30 percent of the revenue that is due to us.” He said that if these numbers are even close to accurate something must be done. “If we are running the country on only 30 cents on the dollar imagine if we collected most or all of our taxes.”
“When we have a budget we must manage to it and it must be auditable and reconcilable. We need to get beyond manual systems and enable people to pay their bills directly and improve revenue collection.”
Mr. Lightbourn outlined that there needs to be a top-down responsibility for budget management with established budget caps in order to reduce spending within a prescribed timeline.
“Additionally the government should develop comprehensive plans to include upfront costs and annual maintenance costs and ensure that the bidding and awarding of contracts is transparent and contractors are held accountable.”
He suggested that Dynamic Economic Modeling be established to assist in analyzing our economy.
“There also needs to be determined ways to measure and improve government productivity and accountability, holding civil servants to the same standards as the private sector.”
He added that the creation of an office of the ombudsman along with independent monitoring and a Whistleblower Act is needful.
The Coalition he said has engaged the government in high level discussions concerning these alternatives; starting with “Collect what is due!”
The Coalition also suggested a payroll tax of five percent which would be fully paid by employers which was well received by the business community. With estimates of about $3.5 billion paid annually in payroll it could potentially net the government $175 million (just $25 million shy of their current projected gain from VAT). He said the payroll tax is simple and could simply be collected through NIB.
Other suggestions included taxing business profits which would replace business license fees at a rate of about ten to twenty percent.
He listed other ideas such as a capital gains on foreign real estate, lower lending rates, raising cruise passenger taxes, adding air-space overflight fees, shipping lane fees, increase existing tax rates, and taxing the numbers business or creating a national Lottery
He concluded by saying that the Coalition is seeking to “Advise the Private Sector and the Government on means to implement, train, fund, educate and market responsible tax laws and regulations.”