Finance Ministry opens the national discussion on VAT implementation

Authored by: Gena Gibbs
Source: Bahamas Information Services
Date: September 22, 2013

State Minister for Finance, the Hon. Michael Halkitis speaks at BACO seminar and luncheon (BIS Photo / Eric Rose)

Nassau, The Bahamas — Competition and AntiTrust legislation designed to target expected inflation, is of concern to the financial and business community to insist that Government considers more consultation on VAT implementation before 2014.  

State Minister for Finance, the Hon. Michael Halkitis, on September 18, explained that the White Paper on VAT implementation responds to the commitment made by the Government during the 2012/2013 budget debate to address the issue of tax reform to include broadening the tax base to include both goods and services.

“The White Paper is designed to serve as the basis for extensive public discussions and consultations that will be undertaken over the next several months.  While the Value added Tax is in widespread use around the globe, we want to ensure that its key design and operational features are attuned to the Bahamian context,” said Mr Halkitis.

He said Officials from the Ministry of Finance are currently in discussions to develop draft VAT legislation, which the Government expects to circulate for comment in the very near future.  He said the target is the second quarter of this fiscal year, which starts in October.  

Minister Halkitis spoke to an audience of almost 300 compliance professionals attending the Bahamas Association of Compliance Officers (BACO) seminar, at the British Colonial Hilton, to address the issues concerning Money Laundering Reporting Officers (MLRO). He spoke on the theme, “Committed to Compliance”, and lined up the purpose of the VAT implementation to extend partnerships with the private sector in VAT operations going forward.

“To date we have had several meetings both here in New Providence and in Grand Bahama, and these meetings continue, and so far we believe these meetings have  been fruitful,” said Mr Halkitis.

“We have also engaged with the manufacturing sector as well as wholesales and retailers.  I expect that meetings with other key stakeholders will follow in the very near future.  In addition, we will shortly begin an extensive outreach in the Family Islands to engage both the private and public sector across the breadth of the nation.”

Mr Halkitis said the White Paper has been online and accessible to the public for several months.  He stressed on a few of the key messages the Government wants to get across to the public.

“To begin with, I would like to state that the proposals in the White Paper were not conceived in a vacuum.  Having made a commitment to seek ways to broaden the tax base, we in the Government sought the best means of doing so such that tax reform proposals could be tailored to achieve three important policy objectives,” said Mr Halkitis.

“These are, number one, to secure an adequate revenue base in support of modern governance.  Two, to establish a tax structure that promotes economic efficiency and stronger economic growth.  And thirdly, to attempt to make the tax system more equitable.”

Mr Halkitis said that after careful analysis and examination of tax policies in other countries, particularly in the Caribbean, the government developed a package of complimentary and fundamental tax reform proposals designed to obtain the three core objectives.

“These proposals include the introduction of a Value Added Tax at a rate of 15 percent as of July 1, 2014; Reductions in import duty rates that will necessarily accompany the Bahamas accession to the World Trade Organisation;  Reductions in excise tax rates which are currently at relatively high levels to compensate for the VAT and leave the total tax payable unchanged;  Fourthly, the elimination of the Hotel Occupancy Tax which is to be replaced by VAT on Hotel accommodations and on food and beverage sales in the hotels at a rate of 10 percent,” said Mr Halkitis.

“As the Prime Minister made clear in his forward to the White Paper, by focussing only on goods, our tax system is out of balance with international norms and is inherently inequitable.  It does not share the tax burden with those who are providing services in a way that is either fair or adequate.  Moreover, a good centric taxation system makes the poor struggling Bahamian pay the same in taxes as the wealthier citizen does.”

Mr Halkitis said in short the government believes the current tax system is regressive. He said in distributing the tax burden, it takes no account of varying levels of means within our society.

“In addition, the Government has launched a number of reform initiatives to strengthen revenue administration in a number of key areas including the establishment of a Central Revenue Agency, modernisation of both the Real Property Tax System and the Customs Department, and the introduction of excise stamps on tobacco products to significantly reduce leakage due to smuggling, and a general review of revenue administration in an effort to better collect the revenue that is currently due to the Government,” said Mr Halkitis.