Every tool need not be a hammer
In 1966, psychologist Abraham Maslow wrote, “I suppose it is tempting, if the only tool you have is a hammer, to treat everything as if it were a nail.”
Maslow was speaking about the professionals in his discipline having a tendency to rely on familiar tools without thinking of novel ways to address problems.
This seems to be the approach of Minister of Economic Affairs Michael Halkitis to stakeholders in the economy expressing concern at the Ministry of Finance’s penchant to wield the government’s power to tax to bend them to its will.
For months, gas retailers have begged the government to change the way the profit margin system works in their business.
Retailers currently earn 54 cents on a gallon of gasoline; wholesalers earn 34 cents no matter the price at the pump.
The margins do not change, yet the government gets paid 10 percent value-added tax (VAT) on a gallon of gasoline.
As the price of a gallon goes up, the sellers get a fixed amount, yet the government gets more revenue.
The Nassau Guardian reported last week that members of the Bahamas Petroleum Retailers Association had an emergency meeting on Wednesday and reached agreement on action they will take in response to the non-response by the government to their request for a change in the margin.
They propose increasing the margin or doing away with it altogether and replacing it with a percentage profit structure.
Halkitis responded in the Senate, saying, “It’s a difficult environment for everyone. The environment is improving, but I’m sure they would say and they would concede that the government has not been deaf to their pleadings and that we have not been inactive.
“But on this point, giving a margin increase, that will lead to an immediate and direct cost of gasoline, there is no other way to say it, no way to dance around it, the government of The Bahamas is not prepared to do it.”
But Vasco Bastian, the association’s vice president, believes there is a way all concerned can win.
Bastian claimed both the prime minister and Financial Secretary Simon Wilson are prepared to adjust the model that dictates retailers’ profits, but Halkitis is holding everything up.
The retailers met with the prime minister and other senior government officials yesterday after what appears to be the intervention of the prime minister.
The margin increase was once again denied but the exploration of “other avenues to bring some relief” was promised.
As we have seen with the price control expansion upon pharmacies and grocers, the government has no problem inserting itself into the private sector without consultation.
That was done as a political stunt that came in the form of a promise to reduce the cost of living amid rising inflation for the most vulnerable among us.
It did no such thing.
And we note the government had no issue leaving in place VAT on breadbasket items that also adversely affects the poor to this day.
The price control approach to inflation was wrongheaded and too blunt an instrument to apply so broadly and Halkitis’ prolonged intransigence was unnecessary.
It appears that the Ministry of Finance is not doing its due diligence in a scramble to squeeze taxes out of people.
And it also appears that it is reluctant, and sometimes unwilling, to listen to reason in its zeal to keep its revenue streams strong, as is the case with the government’s new requirement that all vacation rental property owners register with the Department of Inland Revenue (DIR).
Seeking to identify up to 10,000 short-term vacation rental properties, as it claims to aim to properly regulate the industry, the DIR announced recently that beginning March 1, short-term vacation property owners need to register with the department by the end of April.
Halkitis admitted that the announcement caused some disquiet in the community, however, he said smaller rental property owners need not be concerned about paying VAT.
He noted the DIR is only enforcing what is already provided for in law, despite the blunt way that portion of the Value-Added Tax Act was sprung on the public.
“…The government has to have different tools that it uses to encourage and improve administration,” Halkitis said.
So far, we mainly see one tool – a hammer – being applied in situations where more precision is required.
Halkitis must seek to have healthier dialogue with sectors of the business community that government policies are impacting and not be so frequently unbending in his approach.