When The Bahamas implemented its first Value Added Tax (VAT) initiative the country would never be the same, as residents would have to adjust their purses to accommodate an additional 7.5% spike in goods and services. The Christie Administration would oversee the initial phase of the VAT regime, which would receive compliments from the International Monetary Fund (IMF) stating that The Bahamas has the most productive Value-Added Tax (VAT) regime in the Caribbean, whose productivity/efficiency even exceeded the average across OECD member states, plus European and Asian nations. The Government’s total tax revenues, as a percentage of gross domestic product (GDP), would rise by 4.4 percentage points after VAT’s first full year compared to pre-implementation, while the total revenue collection increased by 39 per cent between fiscal year 2013-2014 (prior to VAT introduction) and fiscal year 2015-2016.(1)
The reason for introducing VAT remains unclear, however we can assume that the decision to implement the tax regime was based on a number of factors including the Government’s repeated decision to spend more than it earned, creating an increasing level of debt from 182 million dollars in 2007 to $550 million in 2013. There was a need for the Bahamas to broaden its tax base, in order to tax both goods and services and eliminating its reliance on custom duty taxes from imports. The Government would have signed on to various international agreements to eliminate tariffs from imports within a certain time frame.
Unfortunately for the then Christie Administration, VAT would become the political party’s Achilles Heel, as public debt worsened despite raising an estimated 1 billion in taxes, and the failure by the government to explain how VAT taxes were spent, eventually leading to change of government in 2017. The following year the new government would announce its plans to increase the VAT rate from 7.5% to 12% by the 1st of July 2018, sparking major protests and great public concern. Its financial and deputy prime minister would promise a level of transparency and would give account for VAT expenditure in the Bahamas Budget debate for 2018/2019.
The Government would explain that the new measures are in part to coincide with the need for the Bahamas to have accession to the World Trade Organization (WTO), as the Bahamas and Cuba are currently the only Caribbean state that is not a member of the WTO. With the increase in VAT the country should expect the eventual lowering of custom duties and further exemptions with a target date for WTO accession in 2019.
Overall VAT will be increased for goods and services save for the exemption of:
- All breadbasket items except for sugar, with such items comprising: butter, mayonnaise, corned beef, baby formula, baby cereal, mustard, soaps, soups, broths and other assortments of small food and personal care items;
- VAT exemptions on medicines;
- Residential property insurance will be exempt from VAT; and
- Residential electricity bills at or under $100 and water bills at or under $50 will also be exempt from VAT
Along with a general rate increase in VAT in addition to certain waivers and exemptions, the Government has highlighted several other exemptions and waivers to coincide and offset the VAT increase. For example:
- An increase in the customs duty personal travel exemption from $300 to $500 per person;
- VAT zero-rating of fund-raising activities held by charitable organizations;
- An assortment of concessions in respect of real property tax, customs duties, excise duties, business licence fees and stamp tax in favour of designated economic empowerment zones, beginning with the inner cities;
- A waiver of duty on clothing and shoe imports upon application by importers and retailers of same.
- Duty-free entry for goods for use in the commercial printing industry, as well as for processing and garment manufacturing equipment without the need to apply for specific concessions as before;
- Extending for one year both the City of Nassau Revitalization Act and the Family Island Development Encouragement Act;
- Extending for five years the first-time homeowners stamp tax exemption;
- Extending for two years the duty exemption on materials used for the renovation, repair and upgrade of dilapidated buildings;
- The elimination of duties on a number of food products, including: whole salmon; frozen fish fillets; bread spreads; potato products; tofu; and prepared and preserved tomatoes;
- The elimination of duties on solar kits upon application to the ministry of finance to supplement the already existing duty free exemption on solar panels;
- A reduction of duties on floor tiles and fabric softener;
- The extension of the 0.75 percent business license fee rate, currently applicable to hotels with turnover over $400 million, to all hotels with ten rooms;
- An extension of the duty exemption to church buses eight years old or less from the current limitation that limits the concession to buses that are three years old or less;
- Providing an exemption from business licence fees for all schools that are registered with the ministry of education; and
- An elimination of the duty on airplanes and helicopters.(2)
Despite the proposed exemptions the Budget Debate has done just the opposite for the local gaming industry, proposing an increase of 50% taxes on number houses together with a 5% tax on customer deposits, prompting a full out rebuke by the industry who have expressed concern that the increases will affect the employment of over 2,000 workers and have vowed to take the issue to the Supreme Court.
As we meet the 1st of July, many residents remain doubtful regarding whether the Government will succeed in lowering national debt or even capable of managing its taxes efficiently as successive administrations have mismanaged several quasi government establishments, only to blame the previous administration for its failures. Recent polls have demonstrated the public displeasure in the tax increase, with 73% opposing the 12% increase, while 62% believing the budget is designed to benefit special interest within the governing party. 89% of the polls suggest that the Government consider the loss of jobs in the gaming industry if new taxes are passed, while only 7% believes the budget to be the ‘People’s Budget’, being synonymous with the winning slogan of the Free National Movement’s used in its 2017 General Elections (3).
It is obvious that the new administration has sailed in the midst of ‘choppy waters’ as the debate has even left its own members of the majority voicing its displeasure over the tax increase, with 4 Members of the majority voting against the VAT increase and was soon later fired from their government post. But as these honourable members play political chess amongst themselves, today’s government has met opposition from the 5th estate comprising of social media activist who have made their voices known and who have shown their ability to mobilise into large protest with little notice.
Compared to previous administrations, however it appears that this present administration has taken note of the concerns and may impact the ongoing debate, as recent reports have indicated the need to make certain changes, such as the inclusion of fruits, vegetables and other healthier foods under the exemption, and the removal of VAT from real estate transactions and the introduction of a more simpler structure with a proposed 2.5% duty on transactions under B$100,000.00 and 10% on transactions over B$100,000.00. As the debate continues it is clear that the country is entering new territory with VAT and has closed the door to the tax free world once accustomed, while seeking transparency and efficiency with tax dollar expenditure.