Progressive Liberal Party (PLP) Leader Philip Brave Davis’ promise that a PLP government would review value-added tax (VAT) is “reckless, self-serving and a shameless attempt to curry favor,” Minister of State for Finance Kwasi Thompson asserted yesterday.
“It is both reckless and self-serving to suggest to persons that any government can offer any wholesale knee-jerk adjustment to tax measures in our present
circumstances given the ongoing need over the medium term for the government to continue to support in an enhanced way the recovery of the economy, and the attendant necessary investments in healthcare, social assistance, education and critical public infrastructure,” Thompson said when asked to comment on Davis’ statement.
Thompson added, “Fortunately, most Bahamians see these comments for what they are – a shameless attempt to curry favor with empty promises that they have no intention of keeping.”
Last week, Davis said that if elected to office, his administration would focus on tax reform and determine whether 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.
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.
During a press conference last week, Davis was asked whether his administration would undertake tax reform. He replied that tax reform is on his party’s agenda and that he was considering “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]”.
Thompson said yesterday that such a suggestion is out of touch with the economic reality of The Bahamas, given the impact of Hurricane Dorian and the COVID-19 pandemic.
“Unlike some who would prefer to engage in idle posturing for purely political reasons, the Minnis-led government takes seriously its obligations to proper fiscal planning and fiscal management,” Thompson said.
Thompson continued, “The opposition should understand full well the economic reality of the country as it deals with the fall out of the COVID-19 pandemic and the unprecedented steps the government has had to take to provide extraordinary funding to keep the government going and the economy above water.
“Because this administration has introduced multi-year fiscal strategy reports, the opposition also understands full well the implications on our debts and deficits that this COVID-19 situation has imposed on the country.”
He added, “This government will stay true to its stated commitment to undertake tax reform in a responsible manner, led by proper empirical research and grounded in prudent public policy instruments.”
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’ statement 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.