If the government maintained the value-added tax (VAT) exemptions on breadbasket items and other items, it would have had to increase the VAT rate to 15 percent, Financial Secretary Simon Wilson said yesterday, further explaining that currently the government’s revenue collection is trending in line with budget projections.
Wilson, who made the remarks while appearing on Love FM radio talk show Issues of the Day, claimed a study done by the International Monetary Fund (IMF) that suggested The Bahamas should increase VAT to 15 percent would have likely been commissioned at the behest of the former Free National Movement (FNM) government.
However, FNM members in the House of Assembly last week categorically denied that they had plans to raise VAT to 15 percent, adding they had not seen the IMF report, which likely came into the Ministry of Finance after the general election.
“The study done by the IMF provided the scenario and recommendation of VAT going to 15 percent as opposed to 12 percent,” said Wilson.
“I also saw that same study and I can tell you… when you look at work by the IMF and so forth, they are not random, they have discussions, they understand what you want and they say OK, we’ll do a study on this.”
Wilson said while countries do not have to follow the advice of multilateral agencies like the IMF, he contended countries should be mindful of the advice given.
“They bring the collective experiences of many countries and many different scenarios, so there’s no reason to repeat the mistakes of others when you have that collective knowledge,” he said.
He said it remains a fact that The Bahamas is an outlier in the Caribbean in that the average regional VAT rate is 15 percent. However, he explained that this country’s economy is much different from others in the region. He contended, though, that had the previous government’s VAT policy remained in place, a rate increase would have occurred.
“If the government had maintained the exemption level which is currently in place, there is no doubt that the VAT rate would have to increase,” he said.
The Progressive Liberal Party government is moving the VAT rate to 10 percent from 12 percent in the new year and Wilson said the change is expected to be revenue-neutral if all things remain the same, but could also be revenue-positive.
He added that right now, revenue collection is on target given the steps that have been taken to spur economic activity, including removing the curfew to extend business hours and with the rebound of tourism moving in the right direction.
“The economy is going to reinflate itself… perhaps by next year, it (the gross domestic product) will go back to $13 billion,” Wilson said.