Friday, Jul 20, 2018
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VAT rises tomorrow

What to expect as govt prepares post-hike impact information
Marlon Johnson.

The rollout of value-added tax (VAT)  at the new rate of 12 percent will take effect at midnight tomorrow.

The immediate effects will be felt across The Bahamas in restaurants, food stores, mobile providers, and many other services.

Though consumers should brace for immediate price hikes, there are some things that should not jump in price immediately.

Also, prices on the shelves for many items will likely not immediately match the ultimate price at the register.

Food stores have been given until the end of August to reflect the VAT-inclusive price, and prices on shelved items may be different from the charge applied at registers, as pointed out by Financial Secretary Marlon Johnson yesterday.

“What happens on Sunday is we have the implementation of the new [rate of] VAT,” Johnson said.

“For all commercial transactions that people would do – go to the store – it would now move from 7.5 percent to 12 percent.”

Although the government announced that breadbasket items will be VAT exempt, those items will be subjected to the 12 percent rate until the exemptions take effect on August 1.

This means that until that time, VAT at 12 percent will be applied to the soon to be exempted items, including 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.

“One of the things I have been pointing out and we certainly will do more, but for a lot of consumers, 25 to 30 percent of their consumption is on breadbasket items,” Johnson said.

“When you factor in whatever is the percentage of consumption on breadbasket items, that the overall impact will not be 4.5 percent for many customers because a material part of their consumption is on breadbasket items.

“And then, of course, beginning in August with the electricity – about two thirds of the customers, their bills at or below the $200 threshold, they will see a savings there.”

As has been widely reported, the government will remove VAT on residential electricity bills $200 or less, and utility bills $50 or below.

As pointed out by Johnson, these will be reflected on customers’ August/September bills as those services are prorated.

Johnson said the government intends to release several post-VAT documents to advise the true impact of the tax increase.

“What we will be doing is, we will do a series of notes just to advise people of what the true impact is, and for a good many consumers, it really won’t add up to [a] 4.5 percent [increase] because of the accommodations made with the breadbasket items, as well as the utilities, and the impact of the duty reductions on clothing and shoes, and apparel, and some of the other features,” the financial secretary said.

Exemptions

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

VAT will also be eliminated on medicines and on residential property insurance.

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.

Amidst the increase in VAT are concerns that the cost of products and services, such as healthcare, will increase.

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.

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

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

In explaining why the government raised VAT, the government said it 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 accedes to the World Trade Organization next year.

It has contended that the implementation of fiscal responsibility legislation would make the government more accountable of public funds, setting spending caps and mandating debt to GDP levels as well as debt redemption.

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