VAT to be added to exempt medicines

The government will add value-added tax (VAT) back to medicines that are now exempt, Minister of Economic Affairs Michael Halkitis revealed yesterday. 

“VAT on everything is going from 12 percent to 10 percent,” he said when asked about the issue.

“We expect a reduction in the cost of living for Bahamians. 

“Another part is this, the biggest purchaser of medicine in The Bahamas is the government of The Bahamas. 

“Those who require assistance in getting that could do so through the National Drug Plan. 

“… So as we say, it’s best to have minimal exemptions. Those who need direct assistance have that provided.”

He added, “We are going back to the model that is minimal exemptions, except for those things, and at a lower rate. When you take everything into the entire picture you will see a reduction in the cost of living.”

The VAT exemption for electricity bills and the special economic zones will remain untouched, Prime Minister Philip Brave 

Davis has said.

VAT was introduced in 2015, under the Christie administration, at a rate of 7.5 percent. Halkitis served as minister of state for finance during that time. 

In 2018, the Minnis administration increased VAT to 12 percent. 

Davis, whose party was successful at the September 16, 2021, general election, said he intends to follow through with his campaign pledge to reduce VAT to 10 percent. 

While Davis previously said the VAT reduction would be for 12 months, Halkitis revealed yesterday that the government does not intend to increase the tax once it is reduced to 10 percent in January 2022. 

The government will also add VAT to breadbasket items, a move that has elicited anger in some quarters. 

Halkitis said yesterday that the reduction of VAT to 10 percent will save consumers money. 

“We understand it’s an emotional issue and we know that it gets to be a very hot political issue,” he said. 

“But our job is to do what we think is in the best interest of the country.”

He noted, “We believe that the savings that the consumer will get on all the other items other than the VAT-free items will more than make up for any additional cost related to VAT being put on those items.

“Of course, the prime minister mentioned the role of price control in his presentation in ensuring that consumers are not unduly exploited. 

“Our advice has always been, from the implementation of VAT … that the most efficient and the best system of VAT is to maintain a single rate with minimal exemptions. 

“If assistance is required to the unemployed, the poor, low-income earners, then you give that assistance with direct cash transfers.

“This makes the system easier to administer and you get the people who really (need) the assistance.”

But St. Barnabas MP Shanendon Cartwright said yesterday that the reinstatement of VAT on breadbasket items “would be a paralyzing burden on the back of the poor”. 

“To take away this much-needed relief directly from Bahamian consumers would only increase hardships and force undue pressure on an already challenged social service safety net,” Cartwright said in a statement.

The current breadbasket includes baby cereal, baby food, baby formula, bread, broths and soups, butter, canned fish, cheese, condensed milk, cooking oil, corned beef, evaporated milk, flour, fresh milk, grits, margarine, mayonnaise, mustard, powdered detergent, rice, soap and tomato paste.

Halkitis said there is no intent by the government to add items to the breadbasket at this time.

The list of VAT-free medications includes anti-bacterial, anti-chaffing, anti-fungal, anti-itch, and anti-nausea medicine.

It also includes aspirin, eye, ear, and nose medication, cough, cold and allergy medicine, fluid replacements, heartburn and indigestion medicine, hemorrhoid medication, pain, and anti-inflammatory medicine, pain and fever medicine, peroxide, rubbing alcohol, soaking salts, and stool softener and laxatives. 

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

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.

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