The VAT, Value Added Tax, system is set to be implemented on July 1st, 2014. Essentially, all consumers will be paying an extra 15% on everything. Although this taxation system is centered on a collection and remitted process at each stage of production, in the end, the consumer is left with a higher cost of living. We are ALL consumers here.
The Government’s reasoning for the VAT is to return to Fiscal Sustainability because The Bahamas has been in a longstanding structural primary fiscal deficit. What this means is that the government has been borrowing to pay the interest that they have on their debt. The government is currently in $5.1billion dollars of debt. This must be paid one way or another so that the country does not fail and end in default restructuring.
Although the VAT is terrifying to everyone, including the government (who failed to have many answers for the people at the Chamber of Commerce meeting), it is thought that the government has no choice. It’s been said that the IMF (International Monetary Fund) and World Bank, who the government has borrowed money from, are forcing the Bahamian government to implement a tax in order to pay these worldwide companies back. The question is, is VAT the way to go? Is implementing a system that has not benefited any country it’s been put in the way to go? Is taxing businesses, consumers, and citizens who are just starting to recover from the recession the way to?
Ms. Maria Ducarand, the economist that spoke at the Chamber of Commerce meeting, stated, “VAT takes 18 to 24 months to implement and that it must be structured properly in order to be progressive.” The Government’s White Paper said,
“Experience in a number of countries, which have been successful in introducing a VAT suggests the following key requirements for success:
- A strong government commitment to implement a VAT
- A sound well designed implementation plan, with a realistic time table
- A comprehensive and extensive public education campaign
- A well designed VAT law with few exemptions, no zero rating of domestic consumption, and an appropriate registration threshold
- A well designed client oriented organization to administer the VAT with, among others, an effective refund mechanism, a strong compliance and enforcement mechanism, and an effective audit program
- An adequate and properly trained staff
- An adequate and effective information technology system. “
The Bahamas has none of the 7 steps above, yet the VAT is supposed to be implemented in 8 months. So what does that mean for us? Most countries that don’t follow that 7 step process end up in more debt, due to paying more government officials to regulate the VAT, and end up raising the VAT even more in order to offset the increased government spending.
So what do we do as a country? Are there any alternatives? What about a national lottery? What about decreasing government spending? Change is up to us.