Saturday, Aug 17, 2019
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The first VAT increase passes

The Bahamas is a young country. We turn 45 next week. Our youth was on full display with the value-added tax (VAT) increase yesterday.

For many the introduction of VAT on January 1, 2015 marked the first time Bahamians were taxed. That’s not true, of course. The Bahamas has a mix of taxes like any other state. What we didn’t have were a full income tax (though we have a payroll National Insurance tax) or an on-your-receipt consumption tax – that is, until VAT.

People see it now on every purchase, with every transaction. Seeing it has made them more aware of, and sensitive to, what the government takes and how often.

Governments are funded by taxation. Citizens don’t like paying taxes. They especially don’t like when the state increases them. There was upset when the Minnis administration rolled out its VAT hike. The government said it wanted to reduce borrowing and prepare for joining the World Trade Organization when customs duties would be mostly removed or greatly reduced. The VAT increase would capture revenue from the lost customs money.

The people were upset. Many were scared, too – some to the point of frenzy.

Saturday turned into Christmas Eve for many retailers. They made lots of money. People came in large numbers to panic buy. There were long lines – especially at grocery stores. Few did the math. If you normally buy $100 worth of groceries per week you’d pay $7.50 in VAT at the old 7.5 percent rate. At the 12 percent rate you’d pay $12. That’s a difference of $4.50.

Whereas it made sense for people buying pricey, big ticket items to do so before the VAT hike, was it truly worth it standing in line for an extra 30 minutes to 45 minutes to save $4.50? Probably not.

What has been missed in all the VAT hysteria is VAT is a consumption tax. There is no automatic take like income tax. The more you consume the more you pay. The less you consume the less you pay. You regulate how much VAT you pay by your consumption.

We all have the responsibility as rational actors to control our spending habits within the limits of our circumstances. Regular gamblers, for example, could easily improve their lives in this environment by visiting web shops less and saving more.

Based on the panicked reaction of so many, politicians will think carefully in the future when it comes to raising VAT. This tax is sensitive to a young country. If the government had raised all customs duties by 50 percent there would have been no outcry. But a VAT hike hits a chord.

People will calm. Consumption will continue. The poor and working class won’t die because VAT went up. They, in fact, would get significant reductions in the cost of goods in the near future if the government sticks to its plan to move away from the silly customs duty regime.

When the people voted out the Progressive Liberal Party (PLP) in 2017 they knew the country was in bad shape. No mess is fixed without pain and adjustment. This is the first in a series of changes to the status quo. At the end of it, the country will be different.

Keep watching and assessing. If in the end you don’t like it, then return to the people who took your VAT money. That’s your democratic right. But if you see the country end up on a more stable footing with increased prosperity, then the pain of today would have been worth it for the greater good and you should stay the course with this administration.

 

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