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Davis: PLP govt would review VAT

PLP leader says determination will be made on whether VAT is still viable

Progressive Liberal Party (PLP) Leader Philip Brave Davis said yesterday that if elected to office his administration would focus on tax reform and determine whether value-added-tax (VAT) is still appropriate for The Bahamas given the current state of the economy.

The Christie administration introduced VAT in 2015 at a rate of 7.5 percent, while Davis served as deputy prime minister.

Asked whether his administration would undertake tax reform, Davis responded, “Tax reform is on our agenda and it does not necessarily mean that we are going to … but tax reform in the sense that we alleviate the burden of taxes on the Bahamian people, which may necessarily mean revisiting whether VAT is the appropriate [tax].

“We did it before. [We will determine] whether in today’s Bahamas, following what has happened to the economy since we were last in office, whether VAT is still a viable means of taxation or whether we should move to something else, and so those will be on the table when you talk about reform; but we don’t know what we’re going to meet when we get there, but we know what we have to do is review our tax structures and determine which route we go from there.”

The PLP leader also said, “I think … our financial challenges to date is leading to an IMF (International Monetary Fund) restructuring loan with this government,” he said.

“That step from a Davis-Cooper administration will be the last resort. We will have the opportunity, as a new government, to reverse a lot of trends and to implement our own economic plan which has as its overarching principle, growing the economy and identifying natural resources that could help us address our immediate debt burden.

“We have a plan that hopefully what we meet can give us the opportunity to buy the time to do what is necessary to grow the economy and implement some of the other initiatives that we will have.”

At a press conference he called yesterday, Davis was also asked what his administration’s reaction would be should financial experts recommend it needs to raise taxes.

He said, “If finance experts suggest we have to raise taxes, they have to inform me of the basis of that because my first priority will be how I lift the burden of the ordinary Bahamian, not add to it.

“My knowledge of the Bahamian economy, my knowledge of the economic fundamentals of our economy, and my experience with dealing with each, particularly in the last administration, point me to why I would not need to do so immediately. And, as I said…restructuring our debt will alleviate the need to seek further taxes and give us the headroom that is necessary so as not to increase taxes at this time.”

Davis said his administration would incentivize growth of the economy while restructuring the debt.

“That is something we can do almost immediately, and I would think that would require confidence in the government to be able to negotiate a good deal to postpone some of our debt repayments to allow us that headroom; and we think that we have the cadre of people than can inspire confidence in the money market to allow us to do that,” he said.

The Bahamian economy came to a near standstill last year as a result of the COVID-19 pandemic.

There was a halt in tourism after the borders were closed for several months and thousands of Bahamians were furloughed due to the closure of non-essential businesses.

In a statement released on January 26, 2021 on its Article IV Consultation with The Bahamas, the IMF reported that real GDP was projected to contract by 16.2 percent in 2020, followed by a modest rebound of two percent in 2021, and to converge back to its pre-pandemic level only by 2024.

Public debt is expected to jump to almost 90 percent of GDP this year and to remain more than 22 percentage points above its pre-pandemic level over the medium-term, the IMF said.

The Ministry of Finance recently reported that between July and December, the first half of the current fiscal year, the government borrowed $2.1 billion as compared to $530.9 million over the same period a year prior.

It also reported a significant widening of the fiscal deficit to $736.1 million from $194.0 million in the same period of the prior fiscal year.

During the July to December 2020 period, there was a 44.4 percent decline in VAT receipts — from $515.3 million in the first six months of 2019/2020, to $286.3 million.

Davis’ suggestion that his government might determine that VAT is no longer a viable means of taxation is likely to catch the interest of observers who had been waiting to hear announcements on critical policy positions as the country moves further into election season.

What some viewed as the Christie administration’s failure to account for the expenditure of VAT revenue was a major issue in the last general election.

Ahead of the introduction of VAT, Free National Movement Leader Dr. Hubert Minnis, who was then opposition leader, declared that it would “harm and diminish the quality of life of every Bahamian”.

In 2018, the Minnis administration increased the VAT rate to 12 percent, saying the move was necessary as it had met public finances in a critical state upon coming to office.

Davis’ statement that his administration might revisit VAT came as there are growing worries that tax increases will be inevitable given high government debt, which stood at $9.3 billion at the end of December.

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Jasper Ward

Jasper Ward started at The Nassau Guardian in September 2018. Ward covers a wide range of national and social issues. Education: Goldsmiths, University of London, MA in Race, Media and Social Justice

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