The Bahamas is standing at the top of the Caribbean version of the luge run: it’s planning to introduce a value added tax (VAT), from July 2014. I’m not holding my breath. It’s been talked about and hovering in the air for a while. Most Bahamians are frothing at the mouth, incensed that their lives are about to be upturned, and prices hiked. The papers have been full of articles from the business sector that higher prices and administrative burdens and more will herald the death knell of the economy.
Experience from countries that moved from tax-free status to VAT should be an example. The UAE had plans to be the first Gulf state to introduce VAT in 2008. Then, things slipped, and slid, and twisted and turned, and now the plan is to introduce the VAT there in…2014. My understanding is that the Gulf Cooperation Council countries were not ready, for what should be a unified tax system. Whatever the reasons, six years on and VAT is still off the table.
Bahamians need to understand what the tax really means, but that may take more than what the government plans to do by bringing in experts from the New Zealand government, due in January 2014.
I watched a very clear PowerPoint presentation prepared last November, that set out many of the important points:
- Current tax system unbalanced and overly reliant on customs and excises
- VAT preferred as superior to sales tax in terms of efficiency and collections; replacing some Customs duties and excises
- Poor culture of tax compliance; business records-keeping poor
- Government needs raise B$200 million; proposed rate (15%) high to help correction of fiscal gap
The problem is that most Bahamians wont see or read this little primer. A lot of hand-holding is needed and much talking at the very basic level, and in language that is plain and simple.
I spoke with a couple of senior citizens today about VAT. One, a retired lawyer, thought it was too burdensome for most of the small economic agents, like the ‘little man selling conch salad’, who would not be competent to comply with the reporting needs. Another, a retired nurse, was focused on what and who would be exempt. Now, these are two caring and intelligent people, who keep themselves well-informed. I showed the presentation. They are at least better informed about the principles.
Bad preparation is often at the root of bad implementation. I wonder if The Bahamas is setting itself up to fail.