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Last Updated: Mar 30, 2017 - 4:58:25 PM |
 NASSAU, The Bahamas -- During his Communication to the House of Assembly on VAT (Value Added Tax) Revenues, Prime Minister and Minister of Finance the Rt. Hon. Perry Christie said, on March 29, 2017, that in light of the central role of VAT in the Government’s programme of tax reform and its "impressive" success in generating much-needed new revenues, it did not come as a surprise that VAT had garnered a good deal of public attention and discussion since its introduction, and especially in recent months.
"Accordingly, the principal objective of this communication is to bring clarity to the main issue in respect of the VAT that has featured prominently in public discussions, and that is – ‘how has the VAT revenue been utilized?'” Prime Minister Christie said.
"This is essentially a question about financial transparency and accountability, both of which are of vital importance to modern democratic governance," he added. "These are issues that most definitely need to be addressed and clarified for the benefit of our citizens. This Communication addresses these issues."
While addressing the issue of transparency and accountability in the public finances, and specifically in respect of VAT revenues, Prime Minister Christie said that the simple truth of the matter is that the Constitution of The Bahamas, the Financial Administration and Audit Act (FAAA) and the country's various programmes and revenue laws provide for the transparent accounting of all Government expenditure and the collection, accounting for, and utilization of every dollar of revenue.
"As well, the Government’s Budget provides an annual statement on detailed expenditure and revenue plans for the coming fiscal year, as well as data on actual outturns for both expenditure and revenue for recent prior years," he said.
According to Article 128 of the Constitution, Prime Minister Christie pointed out, all revenues of the country are to be paid into the Consolidated Fund. As such, he said, revenues from any one source are to be indistinguishable from revenue from any other source.
Faithful to that article of the Constitution, he noted, the Value Added Tax Act specifically stipulates, in section 12. (9), that all VAT revenues collected will be credited to the Consolidated Fund and none are, therefore, to be earmarked for any specific purpose.
"VAT revenues are thus comingled with all other revenues in the Consolidated Fund and therefore are but one component of the Government’s fiscal plans that are presented to Parliament every year and, as such, they contribute to the financing of the Government’s expenditure and also contribute to the attainment of the Government’s key fiscal objectives in respect of eliminating the GFS Deficit over time and reducing the level of Government Debt to the comfortable levels of the past," Prime Minister Christie said.
Prime Minister Christie said that, in the context of the discussion of the allocation of VAT revenues to the Consolidated Fund and the subsequent utilization of moneys from the Fund for the purpose of public expenditure, it was important to note that Article 136 of the Constitution provided for the Office of the Auditor General, appointed by the Governor General, to audit annually the accounts of the Government and prepare a report, and for audits to be tabled in the House of Assembly.
"Importantly, the Auditor General shall not be subject to the direction or control of any person or authority in the preparation of his audits and reports," he said. "In addition, the FAAA contains clear provisions in respect of fiscal accountability and transparency."
Prime Minister Christie said that the question then arose to how the Government had chosen, in the development of its annual fiscal plans, to make use of the additional revenues that have accrued from the VAT.
In the simplest terms, he stated, VAT revenue goes towards three things: tax reductions; funding of expenditure, and deficit and debt reductions being the residual outcome.
"As I mentioned earlier, and as is detailed in Table A (that was a part of his Communication), some $1.14 billion was collected in respect of the VAT in 2015 and 2016," Prime Minister Christie said. "Of this total, the Department of Inland Revenue collected $726 million: $316 million in 2015 and $410 million in 2016.
The Department also refunded some $20 million in VAT over these two years. The Department of Customs collected $415 million over the two-year period: $209 million in 2015 and $207 million in 2016," he added. "Table B sets out the details of VAT collections, by month, for both 2015 and 2016, delineated by source, namely from monthly filers, quarterly filers, bi-annual filers as well as VAT collected on conveyances and VAT collected at Customs."
Prime Minister Christie noted that, since VAT introduction, the Government has announced a number of tax relief measures, which have naturally led to reductions in the Recurrent Revenue of the Government.
"In this context, I would note that the first tax reduction announced was in respect of the Hotel Occupancy Tax that we chose to eliminate at the introduction of VAT, since the latter would now be applicable to hotel accommodations, though at the lower rate of 7.5 per cent rather than the previous 10 per cent,"
Prime Minister Christie added that, with the elimination of the Hotel Occupancy Tax, some $42.5 million in annual revenue had been foregone, for a two-year total of roughly $85 million or 7% of the total VAT collections.
Prime Minister Christie said that, with the implementation of VAT in January 2015, and with the Financial Year 2015/2016 Budget implemented in July of 2015, the Government began the process of paying back to Bahamians some portion of the dividends from our successful VAT regime, thereby providing much-needed tax relief.
He said that among the measures announced were the following: change in the calculation of customs duty, from a CIF (Cost Insurance Freight) to a FOB (Free on Board) basis; the outright elimination of import duties on several items; duty reductions on several other items; the maximum duty on motor vehicles was reduced from 85 per cent to 65 per cent;
duty exemptions under the Family Island Development Encouragement Act were extended for another year and Abaco, the east and west sections of Grand Bahama, Eleuthera and Bimini were added to the list of qualifying areas; and duty concessions under the City of Nassau Revitalization Act were extended for another year.
Also among those measures, he continued, where the following: a reduction in the top property tax rates on owner-occupied residential properties, from 0.75 per cent to 0.625 per cent; more pronounced property tax relief for pensioners in mid-value properties; a 10 per cent discount for persons who pay property tax early each year; a moratorium of 6 months for the waiver of Real Property Tax surcharges on residential properties for persons who pay tax in full or make arrangement to do so; harmonization of commercial property tax rates at a lower level of 0.75 per cent; a reduction in the maximum rate of Business License fees, from 1.75 per cent to 1.5 per cent, plus a reduction in rates to 0.75 per cent for agricultural and fisheries operated businesses, food, meat and fruit processing and independent fuel distributors in the Family Islands;
Added to that were Stamp Duty on real estate transactions was lowered to 2.5 per cent, with the VAT applying only to properties above $100,000; as well, VAT registrants will be able to claim a credit for VAT on transfers whereas they could not do so under the previous Stamp Tax regime.
"In the 2016/17 Budget, our efforts to provide additional tax relief for consumers, businesses and property owners, continued with the elimination and reduction of import and excise duties on a number of consumer goods and building materials; expansion of tariff concessions for light manufacturing; extension of duty exemptions under the Family Island Development Encouragement Act and the City of Nassau Revitalization Act for another year; Real Property Tax concessions granted to residential properties were extended to commercial properties; and Real Property Tax (RPT) arrears waivers were granted to owner-occupied properties under $250,000, in certain situations.
The highlights of the revenue foregone as a result of these tax relief measures, Prime Minister Christie said, are as follows: Customs and Excise Duties (2015 & 2016) -$86.0 million; Customs and Excise Duties (2016) -$48.9 million; Change to Free On Board for Customs and Excise duty calculations (2015& 2016) -$60.00 million; and VAT on conveyances under $100,000 -$7 million.
He continued with RPT property tax rate changes, Owner-occupied, was -$700,000; Residential -$500,000; and Commercial -$250,000.
Finally, he pointed out, there was Business License rate from 1.75% to 1.5% (2016 & 2017) -$38.2 million; Real Property Tax waiver order (under $250,000) -$14 million; Real Property Tax amnesty -$200,000; and Real Property Tax pensioner discount -$200,000.
Including the fiscal impact of the elimination of the Hotel Occupancy Tax -- $85 million -- and VAT refunds -- $20 million -- the total reductions is $344 million in foregone revenue since VAT introduction, Prime Minister Christie said.
"Therefore, VAT gross collections over the two-year period were $1.1 billion; but the net impact on revenues to the Government was $756 million," he pointed out.
"By any measure, a remarkable achievement while maintaining a stable economic environment," Prime Minister Christie said. "VAT was introduced without triggering a major economic contraction despite all of the naysayers prognosticating about doom and gloom."
"This is worth repeating," he added. "VAT was introduced without a recession.
"A stable economy has been maintained with the support of the private sector."
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