Bahamians may be in for VAT 101 lesson:
By VERNON CLEMENT JONES, Senior Business Reporter -
Nassau, Bahamas:



The government would likely have two and a half years to mount a public education campaign bringing Bahamians up to speed on replacement of our current tariffs system with a VAT one. That clock starts if and when the government decides to make that change.

Value Added Tax — a consumption tax levied at each stage of production — has been widely adopted across the globe and increasingly viewed as the easiest way of reaching into the pockets of businesses and consumers, alike.

That growing popularity notwithstanding, the concept may be foreign to a jurisdiction branding itself as "tax free".

"I would think that a lot of Bahamians are unfamiliar with VAT, or Value Added Tax because it's something very new to them," said Ehurd Cunningham, secretary for revenue at the ministry of finance. "But if the government decides to go that route, there will be an exhaustive public relations campaign with two-and-a-half years before implementation.

"No decision has yet been made, however."

That may only be a matter of time.

Ultimately, the government will likely be pushed into moving away from the current system of taxing goods that cross Bahamian borders. It's a revenue earner attracting some $600 million a year, or 19 percent of this country's GDP.

That cash injection aside, our current level of duties and tariffs are largely incompatible with World Trade Organization standards. Holding onto them may, in fact, preclude Bahamian involvement in a host of international trade agreements very much in the near future.

The biggest and most important of them all is a proposed replacement to the Caribbean Basin Initiative, which gives Bahamian goods unfettered access to U.S. markets while allowing us to tax American goods travelling in the opposite direction.

In accordance with WTO rules, its replacement has be a reciprocal agreement, one that would force us to drop duties on American goods in order to protect Bahamian seafood exports among others.

U.S. President George Bush, along with Congress, appeared to give into to Caribbean pleas this summer for an extension to the CBI, one which that only delay the inevitable.

Still that important trade pact is only one of several this nation will have to grapple with, fundamentally deciding between isolation or inclusion, say proponents of Bahamian membership in the WTO.

The question for this nation, is whether it wants to hold onto what it has or reach for the future full WTO membership promises.

"Given (several) factors, one can conclude that determining the best domestic tax policy to compensate for the impact on revenue as a result of The Bahamas joining economic agreements is clearly a major decision for the government of the day," Cunningham told a gather of Bahamian chartered accountants Tuesday. "Naturally, any negotiations by The Bahamas will ensure that its negotiating posture is one which reflects national priorities and sensitivities."

The latter indicates a decided prejudice against replacing the current tariffs system with what many economists view as the most equitable form of taxation — one tied to income.

It's an observation not only alluded to by Cunningham but his former boss James Smith, who stepped down his minister of state for finance post last May. He too addressed the issue of a Bahamian tax regime and possible — or probable — changes to it at yesterday's forum.

Smith suggested that ultimately the country will opt to replace duties with a VAT or sales tax system. Its services-focused nature recommends it.

He argues that duties in an economy so overwhelming centered on providing services as opposed to goods will see a gradual loss in tax revenue as services growth continues to outstrip increases in the goods portion of that economy.

Essentially, the current system taxes the wrong thing.

It's something Bahamians will undoubted hear more about in the coming years, although the choice about where exactly taxation is headed in this country may be largely out of their own hands.

11/07/07