VAT is that? Happy New Year, Bahamaland!

Christmas time in The Bahamas is more the full-fledged 12 days variety than the American 1-day or British 2-day variety. Normally, everyone would be in high spirits and full of the Holy Spirit when the old year turns over to the new year. This year was different. Bahamian hearts were pounding faster than usual. They were gripped with fear. Like when a Junkanoo group is about to hit Bay Street, the chant of “It coming!” was in the minds, if not the mouths, of many. “What’s coming?” an American tourist could have asked as she gazed at the duty free watches in one downtown store. VAT!

Bahamians have had to pay duties and fees on many goods, especially, imports, whether they came in suitcases after trips to Sawgrass Mill in Miami, or on items bought in the local department store, Kelly’s. Now, they had fire in their bellies. They would have to pay a tax on most goods and services they consume.

“Man, deh tiefin!” That has been a familiar cry as many citizens grappled with what the new levy meant. I heard that some merchants had been hiking prices ahead of the new VAT. I can only imagine that was to give the impression–false–that new prices included a tax that wasn’t there. Pure profit. I haven’t really probed that as it’s in the spirit of unscrupulous behaviour that entrepreneurs try as they eke out gains. You need policing of the formal and informal kind to keep crooked people straight.

I’m not going to do a VAT 101 course. Judging by the questions I’ve heard my in-laws asking, the education drive on the tax has failed miserably. The guide provided by the government is clear, but that’s not the end of the story. Luckily for them, they’ve some economists, lawyers and accountants in the ranks who can offer clear explanations and examples. Yet, my mother-in-law kept adding ‘What if he has goods that were in the warehouse before January and he puts them on the shelf?” She got the answer but didn’t lie it that “They’d be getting VAT…”
Part of the problem is not understanding and trusting that merchants will act as tax collection agents for government and pass on the tax revenue. It’s complicated in many minds because VAT-levying merchants are eligible to claim VAT refunds, and will pass onto government VAT revenue after they have deducted VAT they’ve paid on inputs.

I did not mention that many VAT-evasion schemes have been tried, some of which have succeeded. That’s in the nature of the beast, but when you have no culture of paying taxes, it adds to the suspicions. Add to that a culture of distrust in government and you’ve an admixture that is toxic.

My former colleagues at the IMF and consultants from New Zealand have worked long and hard to get this tax rolling. It’s not high, by international standards–7.5%. It’s supposed to replace certain duties, but that won’t happen instantly. People will squeal.

Little tricks will annoy. Customarily, many restaurants add a gratuity to bills. That was fine when no VAT was levied, in the sense that the cost was clear. You could grumble, as I do, about it’s being 15%. Now, gratuities are levied, but on the cost INCLUDING VAT. To me, that’s not fair. In the UK and US, the accepted practice was to add tip BEFORE tax. It will be interesting to weenie American tourists respond. Many won’t check or care.

But, just as people adjust to driving over the many roundabouts on the island, or having to drink sky juice (gin, coconut water, and condensed milk) with conch salad, Bahamians will adjust.

Most prices should be displayed inclusive of VAT, but in restaurants prices can be shown exclude of VAT, and VAT displayed separately. For some, that will be confusing.

In the court of popular opinion, it would be useful to check attitudes and opinions before VAT and periodically after its introduction. I don’t suspect people will love it, but will dislike it much less if they see revenue flowing to places that need it. If wishes were horses, beggars would ride.