Saturday, September 13, 2014

Value Added Tax: Fears and Solutions!

The Value Added Tax (VAT) initiative has taken some interesting twists and turns down the road of reform, from the VAT Bill tabled in the House of Assembly in late August, 2014 with an implementation date of January, 2015- a change from the initial July, 2014 date for implementation.

The road hasn't been easy, to say the very least. But, it's a road that must be travelled and all parties involved should look at it as a solution to a lot of the fiscal problems and financial management issues we face in The Bahamas.

Be that as it may, the messaging of VAT with the subsequent reform efforts it is supposed to usher in has not been articulated extensively enough.

The Financial Secretary of The Bahamas, John Rolle, is the key spokesperson for the initiative. A very brilliant man by all accounts from all sides of the Bahamian divide. However, public speaking and presentation is might not be his forte. 

Apart from him, no one else has been more prominent in this exercise. Everyone else is virtually non-existent in this entire affair;  the VAT Coordinator is MIA, if there is one; The Minister and Minister of State for Finance are consumed with political and policy agendas of the entire country as they should be; and the international consultants that were engaged on this matter should be more forthcoming.

I wish, however, for those thinking hell and war-zone, with the main spokesperson seeming to be a little disconnected with his knowledge, to pump their breaks. Hold on for just one minute. Here's why!

For starters, it's not as if we all don't already know, maybe not as much as Minister of State Halkitis and Mr. Rolle, where the Bahamas stands with regard to public finances. Years and years of waste, mismanagement, revenue leakages and high interest rates was met by this current political administration, some of it theirs and a good portion of it from previous administrations.

It's also not a secret that The Bahamas is one of the least taxed jurisdictions in the Caribbean/North American region. With figures provided by the Heritage Foundation, Haiti is estimated being the least with a 9.4% tax to GDP, Barbados being the most with 32.6%. The Bahamas is in third place with a 18.7% tax to GDP behind the Dominican Republic with a 12% tax to GDP. The USA is situated at just about 30%.

These figures do not indicate, however, the amount of revenue collected as a result of the tax to GDP rates. In fact, the IMF in their Staff Report from 2013, estimate that less than 50% of all revenue is collected through our various revenue collection agencies. Some feel that figure is a very liberal estimate.

Without a doubt, even with the recent downgrade of Moody's report that puts the Bahamas Sovereign Credit Rating at Baa2, just two tiers above junk bond status, again shows you the need for reform in a fundamental and most significant way.

The messaging on taxation reform, VAT, revenue enhancement measures and necessary budgeting reforms, is not going as well as one would have anticipated. For obvious reasons, the content is sometimes difficult to grasp, but also the presentations have been somewhat terse in their representations, almost as a means to bring people to an understanding of the gravity of the situation in a concise manner in the shortest time as possible.

Some hopeful suggestions at this time for bridging this gap is necessary.

For starters, what we would wish to see is more written commentary by the VAT team on all imparted information and tasks completed thus far. Aside from the public forums where presenters are made available to the public, written commentary adds not only a piece of information people can digest and study on their own, but also a way where points can be articulated more clearly as opposed to the rabble-rousing atmosphere of Town Hall meetings. This current political administration has met this extremely messy and controversial challenge head on. We have to give them that!

Secondly, social media should not only used, but maximized and utilized effectively. Particularly with regard to visual media, video presentations and junkets of news releases, guidance notes and their relevant updates and changes. With the advent of electronic information highways and social media, it lends to regular print and television media the added kick as information is readily and easily stored and made accessible to people that wish to review at a later date.

Lastly, and certainly not the least, picture graphs, flow charts, process maps and the like should be used more effectively. Particularly with regard to the VAT mechanisms- point of entry for goods, and the payment process and point of sales for goods and services. And also for the VAT return mechanism and how that should work.

A host of other initiatives could be undertaken to improve the VAT's messaging and optics of this entire initiative. Even though there are persons paid to coordinate this, we must take it upon ourselves and act responsibly as citizens: Understand the weaknesses; pin-point where efficiencies and lessons can be drawn; and work towards minimalizing the fallout as opposed to wholesale destruction and chaos if not handled properly.

We owe our country our best efforts, despite the bottlenecks, the psychological damage already done by even the slightest intimation of reform, the personalities that may invade the process, and the political fallout from particular interest groups, all of which can become very problematic currently and for the future.
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