Home / News / Politics / Min. Halkitis speaks to Abaco on VAT Tax
During the Vision Empowerment VAT Seminar at Change Ministries Minister of State for Finance, Michael Halkitis spoke to a room of about 150 persons concerning the proposed Value Added Tax (VAT) due to be implemented on July 1, 2014 and answered questions from the audience.

Min. Halkitis speaks to Abaco on VAT Tax

 

Above: Minister Halkitis speaks to a crowd in Abaco about the Value Added Tax.
Above: Minister Halkitis speaks to a crowd in Abaco about the Value Added Tax.

During the Vision Empowerment VAT Seminar at Change Ministries Minister of State for Finance, Michael Halkitis spoke to a room of about 150 persons concerning the proposed Value Added Tax (VAT) due to be implemented on July 1, 2014 and answered questions from the audience.

He said that events like this involve everyone and “awakens the citizenship” in participating, acquiring more information and having input in what he called a truly consultative process.

“We need to have this discussion because at the end of the day we need to have the buy-in of the majority of the Bahamian people,” he said. “There is no use the government trying to impose something that the people will reject or be hostile to.”

Mr. Halkitis said that VAT is not the totality of reform. He said the government in February of 2013 published a medium term plan for fiscal consolidation to “get their fiscal house in order.”

“We can’t do it by just taxation; can’t do it by just seeking economic growth; and we can’t do it cutting government expenditure. We can try very hard to improve revenue administration but that will not do the whole job that needs to be done. We need a combination of those four things.”

He said that it’s no use bringing new taxation when citizens can see continued wasteful spending from the government. He said that the government has done a poor job in the collection of revenues owed, noting that they were in the process of reconciling records in real property tax in the hopes of correcting this issue.

Mr. Halkitis showed a number of slides detailing how over the past twenty years the government has spent more than it has earned in revenues leading to a current debt of just over $5 billion.

“If we continue on that path it only gets worse. We have to do a better job of not spending more than we make. That is reality,” he said.

He said that if the debt is allowed to get too high there is less capacity to borrow for capital projects as well as in cases of emergency – such as dealing with hurricane damages. He acknowledged that the rise in debt to GDP ratio will also lead to a credit downgrade, which will affect the country’s ability to have access to credit.

Mr. Halkitis spoke of the burden of pensions in government’s financial obligations noting that presently the government pays $75 million in pensions. The government is seeking ways they can reduce this because in about ten years it will be $240 million and in twenty years will go over $300 million. “We are working now to avoid a bigger problem down the road.”

He said “We have to expand our revenue base because currently most of the money the country makes comes from customs duties and excise taxes.”

The government wants to implement VAT while reducing Customs Duties and Excise Taxes and improve revenue performance from existing taxes including customs duties and excise taxes.

“We are investing a lot of money into Customs to modernize it with new technologies so you can clear your customs entries online. We want to look at modernizing the whole business license regime and real property tax,” he said.

Mr. Halkitis said the government has an implementation date of July 1, 2014 but “we have to make sure everyone is ready; we’re pushing hard towards that target.”

He said that if adjustments are necessary for smooth implementation they are prepared to look at that.

He said it will be administered by the Central Revenue Agency which comes under the Ministry of Finance and the Hotel Occupancy Tax which is currently ten percent will be replaced with a ten percent VAT. He added that there will be a rebalancing of customs duties and excise taxes to account for 15 percent VAT.

Mr. Halkitis said they have conducted studies on a lower rate, such as ten percent, as well as having feedback from the public on their desire for a lower rate which is something they are looking at.

He explained that with the rebalancing of customs duties and excise taxes with a fifteen percent VAT would result in a gain of just over $220 million in revenue

Explaining more on VAT Mr. Halkitis said it is a multi-stage consumption tax that acts largely like a sales tax. It is not a regressive tax like income tax. He said the government would be exempting certain breadbasket items, financial, medical and educational services to minimize the impact.

He gave several examples of how VAT would work and explained that it is collected at the various stages of the supply chain. He said because the cost of custom duties will go down the government does not think the cost of goods should go up too much.

He also gave examples of VAT registered businesses versus non-registered businesses. He said that the non-registered business would not see any significant advantage by not charging VAT as they would not be able to receive any refund for VAT paid.

He said that any business making under $100,000 per year would be exempt from registering for VAT. He said that there are about 4000 businesses making over $100,000 per year and these represent 98 percent of turnover in the economy.

VAT will be paid when items are imported, like customs duties, and will be refunded when the items are sold. Whatever you pay VAT on you keep a record of and deduct it from the VAT collected.

Businesses will be required to keep records of all sales and will need to display a VAT certificate prominently to allow customers to know that the business is registered and authorized to collect VAT.

VAT is designed to improve administrative efficiency, increase compliance and improve revenue generation. We believe because registered businesses would be eager to get a refund they would keep accurate records.

He said the government is now working to finalize the rates of duties on items as well as items that will be exempt.

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About Timothy Roberts

Timothy Roberts

Timothy had his first venture into Journalism just months after graduating from Queen’s College in Nassau taking his first job with The Tribune in 1991 leaving in 1992 for other pursuits.

During his time in Nassau he diversified his experiences working as a warehouse manager, locksmith and computer technician before returning to Abaco, a place he has always considered home, in 1999.

He joined the staff of The Abaconian in 2001 doing graphic design and writing an opinion article called Generally Speaking and after a brief time away, returned to The Abaconian in 2010 as a reporter, graphic designer and computer technician.

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