No going back

Minister of Economic Affairs Michael Halkitis said yesterday that the government will not increase value-added tax (VAT) after it lowers the tax to 10 percent in January 2022.

In March, the Progressive Liberal Party (PLP) said, if elected, it would lower VAT from 12 percent to 10 percent for a period of 12 months.

But Halkitis said yesterday that the government intends to keep the tax at 10 percent. 

“We don’t expect that we have to go back to 12 percent next year,” he said during a press briefing at the Office of the Prime Minister.

“I think we have taken it out of our plan. In our plan, it says 10 [percent]. We are prepared to go ahead with 10 percent. We’ve actually done an economic model … where we have asked some experts to do some scenario analysis on what will happen if this happens – if XYZ happened – and they gave us a report. We have that.”

He added, “When the matter was first raised, which was in the PLP’s economic plan … about six months before the election, we … said we’d do it for a year. 

“I think when we put it in the Blueprint [for Change] we said we’d do it from 12 to 10. Originally, what our thinking was, was that you put it in and you’ll see how it works.”

Halkitis said he believes the reduction in VAT, along with other measures, including enhanced revenue collection and a growing economy, will result in improved revenue for the government.

“We started that work,” he said. 

“We feel very optimistic … about the economy.

“We see good demand. So we believe we can exist with 10 percent with a growing economy and improved revenue administration. Our idea is we should be able to exist with 10 percent going forward.”

Halkitis noted that the government will add VAT back to breadbasket items, and medicine.

With the reduction of VAT on all items, Halkitis said the best system is to maintain that low rate with minimal exemptions. 

Where assistance is needed by the less fortunate, the government has the mechanisms in place to help, he said.

The Davis administration, which was elected on September 16, tabled a supplementary budget in the House of Assembly on Wednesday. 

In the recast budget, the government projects that it will collect an additional $92.3 million in revenue – $80.5 million of which is expected from VAT. 

Halkitis said yesterday that this projection is based on the “strong indication” the government is getting from the tourism industry as well as loosening COVID-19 restrictions on businesses.

The economy in The Bahamas cratered after suffering from two crises, Hurricane Dorian in September 2019 and the COVID-19 pandemic in March 2020.

Dorian, which caused $3.4 billion in damage, severely damaged Abaco and Grand Bahama, which are the second and third largest economies in the country.

The ongoing COVID-19 pandemic resulted in a months-long closure of The Bahamas’ tourism industry and other commercial sectors.

At the end of the 2020/2021 fiscal year, the fiscal deficit stood at $1.3 billion, up from $811.7 million in the previous year.

The national debt climbed to $10.3 billion. Gross borrowing was at $3 billion for the fiscal year.

In the supplementary budget, the government projects a decrease in the 2021/2022 deficit, from $951.8 million to $858.6 million. Halkitis said no additional borrowing is expected this fiscal year.

In March, then Shadow Minister of Finance Chester Cooper said the PLP’s plan to decrease VAT to 10 percent could increase government revenue by $200 million. 

In 2015, the Christie administration introduced VAT at a rate of 7.5 percent. Prime Minister Philip Brave Davis served as deputy prime minister during that administration.

While he opposed the introduction of VAT at the time, Dr. Hubert Minnis, who served as prime minister for the last four years, increased the tax to 12 percent in 2018. 

Minnis said the move was necessary as it had met public finances in a critical state upon coming to office.

Minnis, who now serves as opposition leader, has decried the removal of VAT on breadbasket items and medicine arguing that it will hurt the poor.

Debate on the supplementary budget starts in the House of Assembly on Monday.

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