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Bitter pill

Deputy Prime Minister and Minister of Finance Peter Turnquest revealed yesterday that value-added tax (VAT) will increase from 7.5 percent to 12 percent effective July 1.

The increase in VAT is expected to bring in an additional $400 million in new revenue.

In his 2018/2019 budget communication, Turnquest said the government must find a way to pay off its “massive backlog of arrears” and set the stage for pending reductions in customs duties when The Bahamas accede to the World Trade Organization next year.

“To address that challenge, we are proposing a three-year fiscal strategy that will allow us to both deal with the assorted fiscal pressures that we face in 2018/2019 and beyond and meet the deficit targets each year,” Turnquest said.

“As a core component of that strategy are – as mentioned earlier – a number of enhanced revenue measures in the form of an increase in taxes and fees – and enhanced revenue collection efforts – targeting critically needed new revenue.

“The incremental revenue gains will permit execution of the government’s three-year fiscal plan as follows: In year one, we will pay off over $170 million in old bills and finally budget properly for current known commitments; in year two, we will pay off over $100 million in additional arrears and begin to implement reductions in customs and excise duties to rebalance the tax burden between the provision of goods and services and reduce the attendant distortionary impacts; and in year three, we will substantially complete the payment of arrears and make further significant reductions in customs and excise duties.”

To achieve this, the government will increase taxes on gaming houses, immigration fees, licensing fees on large commercial vehicles by $50 for class B and class C vehicles, police record fees and fingerprint fees for casino employees and introduce new port fees.

At the announcement of the VAT increase, opposition members immediately jeered Turnquest from their seats.

“Our government fully appreciates the sacrifice that the substantial increases in the VAT rate and other taxes will represent for our citizens,” Turnquest said.

“But, as I have repeatedly said on record, this government was elected to do what is right for the welfare of the country and not to do what is politically expedient or politically popular.

“Facing the situation that we have, we could do as governments have done before – and simply present a misleading budget with under – budgeted allocations and hidden obligations.

“We could have kicked the can down the road and borrowed some more – delaying the inevitable day of reckoning.

“By playing this game we would have only made a bad situation worse.

“The country’s bond rating is at junk status. The reason for that is because others before us failed to act promptly and judiciously.

“But worse than the junk status, the penalty for inaction is a continued quickening crawl toward a fiscal point of no return.

“And, as we have seen, when countries hit crisis mode, the path to correction is extraordinarily hard and painful.”

The government projects that VAT collection in 2017/2018 will total $663 million; it is forecasted to collect over $1 billion in the upcoming fiscal year.

Turnquest said the government recognized that it must improve its tax yield on existing taxes immediately.

“That notwithstanding, the firm determination of this government is that we must fix the situation and do so beginning today,” he said.

“No more kicking the can down the road for someone else to clean up. We are making the tough choices, understanding that the redress of our fiscal situation does require real sacrifice on the part of our citizens; however, by doing so, the country will reverse its spiraling debt situation and set itself up for success in the medium and long term.

“To ignore the dire fiscal situation before us would be to delay the inevitable adjustment. And the longer we would have delayed, the worse the correction that would be required.”

This is the first time since VAT’s inception in 2015 that it will be raised.

The Christie administration had proposed to implement the tax at 15 percent in most cases, but after public pressure and consultation introduced it at 7.5 percent.

Exemptions

While Turnquest revealed hefty tax increases, he revealed some tax relief.

As of August 1, VAT will be removed off all breadbasket items, except sugar, which will be removed off the breadbasket.

This means that there will be no VAT on butter, cooking oil, mayonnaise, grits, cheese, corned beef, evaporated milk, margarine, rice, flour, bread, tomato paste, baby cereal, baby formula, soup, broths, baby food, powdered detergents, condensed milk, soaps, fresh milk and mustard.

The government is eliminating customs duties on whole salmon, frozen fish fillets, bread spreads, potato products, tofu and prepared and preserved tomatoes.

The government is also eliminating VAT on medicines and on residential property insurance.

VAT will also be waived on residential electrical bills that are $100 or lower and on water bills that are $50 or lower.

“For electricity customers, this would impact over 30,000 BPL households alone,” Turnquest said.

“For water customers, this would impact some 43,000 Water & Sewerage customers.

“This waiver will be applicable to all licensed utilities in the country.”

The government is also increasing the customs personal travel exemption from $300 to $500 per person.

“We are providing for the VAT zero-rating of fundraising activities held by charitable organizations,” Turnquest said.

The government is implementing various concessions for real property tax, customs duties, excise duties, business license fees and stamp tax for businesses in designated economic empowerment zones in the Over-the-Hill community.

“We are providing for the waiver of duty on clothing and shoe imports upon application by importers and retailers of same,” Turnquest continued.

“This will be extended to any merchant, large or small, who has a business license for the sale of clothes or shoes.

“We are at the same time putting in place procedures to ensure that the savings are passed on to consumers.

“This will be a benefit to all Bahamians, but particularly to those who do not have the means to travel abroad to shop for their clothes like others are sometimes able to do.”

The government is providing 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, the deputy prime minister said.

The government is also eliminating duty on airplanes and helicopters to “build an airplane registry industry”.

Duty on solar kits, upon application to the Ministry of Finance, are also being eliminated.

“Presently solar panels are duty free, and this new allowance will mean that vendors or individuals who are bringing in full solar kits can have all related elements brought in duty free,” Turnquest said

Travis Cartwright-Carroll

Assistant Editor at The Nassau Guardian
Travis Cartwright-Carroll is the assistant editor. He covers a wide range of national issues. He joined The Nassau Guardian in 2011 as a copy editor before shifting to reporting. He was promoted to assistant news editor in December 2018.
Education: College of The Bahamas, English

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