Bowe: After VAT cut, govt must focus on reform beyond Jan. 1

In just a few days, value-added tax (VAT) will be reduced from 12 percent to ten percent, but a leading financial expert said the government must focus on its tax reform plan beyond January 1.

Fidelity Group Chief Executive Officer Gowon Bowe said Bahamians must come to terms with the idea that “you get what you pay for”, noting that the sky’s the limit in terms of how government can meet its revenue targets through taxation.

“Notwithstanding the challenges on all of our incomes and all of our financial lives, the reality is we have to render unto Caesar what is Caesar’s. With that we should not be closed minded to the evolution of our tax system. We really need to look at this as saying we want to revamp the tax system to enable it to be equitable, enable government to meet its expenses as they come due and allows us to compete globally, particularly as a financial services center and open economy,” he told Guardian Business.

“It is highly inappropriate to say that we are not minded to implement an income tax. Really what we should be saying is that we understand that our tax system is not equitable, competitive and meeting our financial needs and so therefore we need to revisit it. When we revisit it let us not tinker around the edges, let us scorch the earth and start afresh.”

Last week the Ministry of Finance cautioned businesses to be prepared for the January 1 switchover to ten percent VAT.

The Progressive Liberal Party (PLP), which promised the tax cut as a part of its election campaign, has said that from a revenue uptake perspective, the lowered rate will spur more economic activity. Critics, however, have said the reduction to ten percent and removal of zero-rating on breadbasket items and medicines disproportionately impacts lower income consumers.

“So on the VAT front, not to create a negative emotion but the truth of the matter is while the government reduced the overall VAT rate, it removed the zero rating and exemptions which will now lead to payments on items that were not attracting VAT for a period of time. So the net effect of the two percent decrease with the removal of zero ratings and exemptions at the very least is going to be flat based on the empirical study they had – and they need to publish it – but based on the empirical analysis it is going to be revenue neutral or revenue positive,” Bowe said.

“I know that there are those who feel that by adding it onto breadbasket items and medicines that it is going to create an undue burden on those who are least able to afford it. But the truth of the matter is, zero ratings, exemptions are not targeted sufficiently. So not only was that benefit being afforded to those who are less fortunate, it was being afforded to those who are more than capable of paying the tax. And so, with the removal of zero ratings and exemptions, all persons will pay including those who could have always afforded to pay. And the person who will now think that it is now burdensome, that is where the government’s social security program comes in.”

Looking back at the year and how the country fared economically, Bowe said it’s important to be honest but not punitive. He said The Bahamas has survived to get to this point in time, notwithstanding the economic challenges, including a large deficit and ballooning debt. The financial expert said the country has not had any major negative fallout in terms of defaults and instances where bills could not be paid.

“So, when you ask the question where do we go from here, there have been some very telling statements by the government that are like a jigsaw puzzle that we have to put together. They have indicated a desire to get tax revenue as a percentage of GDP up to 25 percent, which is the general benchmark of developed societies. We currently sit at 17 to 18 percent even with value-added tax and notwithstanding all of the greatest intentions in the world, we know that you are not going to increase it from 18 to 25 percent without some very radical changes,” he said.

“That doesn’t mean an overall tax burden to the poor, that just means that we’re going to have to look at our tax system and really modernize it to the point that it allows us to extract 25 percent without damaging what is already our economic model. To be perfectly honest, that is about equitable distribution and we currently don’t have that because a consumption-based system unduly burdens those who consume the majority of their earnings, that’s the system that we have now. So I would say the sky’s the limit where our tax reform is concerned, because in reality we have continued to stay at the bottom of the barrel, wanting to maintain the system that we’ve had since pre-independence, but the world has changed and we have to appreciate that we have to change with it.”

The post Bowe: After VAT cut, govt must focus on reform beyond Jan. 1 appeared first on The Nassau Guardian.

source https://thenassauguardian.com/bowe-after-vat-cut-govt-must-focus-on-reform-beyond-jan-1/