Remarks by Minister Halkitis at the Golden Gates Outreach Assembly Luncheon

Posted on: December 9, 2013

Authored by: The Hon. Michael Halkitis
Source: Ministry of Finance
Date: December 9, 2013

It is my privilege to address you all this afternoon at the Golden Gates Outreach Ministry, as a part of this luncheon session. I was very pleased to see that this Outreach Ministry rose from such humble beginnings into the organization it has become today whose mandate continues to focus on not only sharing the Gospel of Jesus Christ but also living out his example through community outreach efforts. This ministry has cemented its reputation as a positive influence to this and the surrounding areas and it is my hope that the good works of this ministry will continue for generations to come.

As we are all well aware, over the past year or so, there has been a lot of talk about the introduction of the Value-Added Tax in The Bahamas-on both the positive and potentially negative effects of this tax. The Government has been working tirelessly to ensure that all of the potential impacts of this tax are considered and that the positive impact by far outweighs any negative impacts.

It is my hope that as a result of this session, we will all leave with a better appreciation for why the Value Added Tax is both necessary at this time but also will prove beneficial to our country going forward. It is also my intention to show that the Government has not neglected to bear in mind the needs of the poorest and most vulnerable in our country when considering the effects of this tax; so that we understand that the VAT will not represent an unbearable burden to those already in dire need of resources. 

One of the key selling points of The Bahamas as an attractive destination, in addition to our world class natural resources-sun, sand and sea-has been that we are a country that tries very hard not to burden its citizens with unnecessary taxes in order to fund Government operations. Because of this, The Bahamas has always enjoyed a very liberal tax environment compared to both our larger neighbors to the North and even when compared to our counterparts in the Caribbean region.

This being the case, we have largely relied on a very narrow range of revenue sources: principally customs duties, real property taxes and stamp duties.

While these revenue sources have been sufficient to sustain growth in The Bahamian economy in decades past, the effects of the worldwide recession have significantly altered the current economic reality of The Bahamas. As tourist arrivals declined, jobs in the private sector were lost and trade revenues decreased substantially, the Government was forced to direct more and more resources to keeping the economy afloat. As a result of these efforts, our country’s debt rose steadily while our revenue collected remained stagnant.

It became increasingly clear that in order to ensure economic growth and sustainability going forward, The Bahamas will need to diversify its sources of revenue collection. This is the Government’s aim with the introduction of the VAT.

While it is easy to make the case for why this new tax is needed one of the main concerns with the introduction of any tax is that the cost of living will immediately increase. This is particularly worrisome for those in the community who are already struggling to make ends meet. It is therefore critical that we understand why VAT will not unfairly target the poor.

In order to counteract any cost of living increase as a result of VAT, the Government will ensure that a portion of  VAT resources are channeled into programs to assist the poor in this country, particularly in the first few years after the VAT is introduced. Additional revenue collected from VAT will ensure that the Government is able to fund its current social assistance programs and is able to expand these even further in the future, as opposed to seeing a possible contraction in these services due to revenue constraints. 

The Government has further announced that it will reduce both Customs duty rates and excise taxes to fully compensate for the introduction of VAT. This will mean that, as much as possible, the VAT will not represent an additional levy on top of what is already charged in Customs Duties.

Furthermore, basic breadbasket items will be exempt from VAT and VAT will not be paid on medical or educational services. Households in need will also benefit from a proposed exemption from VAT on most of their electricity and water consumption. Such exemptions will go a long way in ensuring that people continue to be able to afford basic necessities.

Research undertaken by the Inter-American Development Bank indicates that these measures would be sufficient, by and large, to counteract the effects of VAT and tax reform on poverty levels in this country.

In the end, we can see that the current economic situation of The Bahamas is not where it needs to be in order to guarantee continued increases in employment, and the provision of much needed public goods and services. As a Government, we cannot ignore that important actions need to be taken now to ensure our country’s continued growth and development. In considering the options available, it became clear that the Value-Added-Tax is the most appropriate intervention to take. As we move to implement this tax, we are also committed not to neglect the needs of the poor. We aim to ensure that the Social Safety Net is not eroded in any way but continues to expand and plan to channel resources where they are needed most.

Thank You.

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