Let me open by saying that I am a born and raised Bahamian with a deep love for my country, its people and, of course, the beauty that surrounds us. We are very fortunate and we enjoy an unbelievable quality of life compared to many other Caribbean countries and countries around the world.

Let me also say that I write this very humbly, knowing full well it could contain grammatical errors, spelling errors, errors in calculations and errors in general. I will try my best to shed a little light for the average Bahamian on the VAT proposal, not so as to pick a fight with the Government but to simply continue the dialogue between small business owners like myself (with businesses in both Nassau and Freeport, one engaging in product retail and service sales, another engaging in purely retail sales and another engaging in wholesale/distribution) and the Government on their VAT proposal.

I will confess that I have never voted, not once, and I am now 37 years old. Fear not, I don’t complain about who is in power because to me all politicians and political parties vary so little as to not warrant my vote.

Not voting is indeed a choice, and one I admit to openly. Frankly, it boggles my mind how worked up people get locally and in other countries when talking politics. The people never get the true change they so deeply desire, and that the politicians so convincingly promise to the masses. Doesn’t anyone else feel it is just the same old, same old; what has really ever changed? My opinion is the Government and its politicians operate like any other business and their management, in that they are motivated by profits. However, unlike the shareholders of a business, the people of a nation don’t seem to ever see the true value of their investments ever realised. This is reality across the world, some cases more extreme than others, but it is reality. I felt it necessary to include this paragraph because I want to make it clear that I have zero political bias towards any party, both past, present and, unfortunately, probably the future.

I think it is obvious that the Government/Treasury are flashing the warning lights. The debt is growing and their revenues (currently estimated to be $1.5 billion as per ‘The White Paper’ released earlier this year) are simply not enough to service the debt and cover expenditures. I would imagine this is why we have seen the introduction of new fees when importing goods, which seemed to have come out of nowhere and severely impacted many businesses across our nation, especially those operating in the ‘tax free’ zone of Freeport. I would also imagine it is why the Government released ‘The White Paper’ on tax reform and proposed implementation of VAT.

If you haven’t read this yet I suggest you do.I have heard that VAT and tax reform is a must if we are to join the WTO. Ask the majority of Bahamians what does WTO stand for, what does it do and why should the Bahamas be a member of it, and I would guess that there would be a fair number who cannot answer the first two questions. Opinions would be divided on the third question.

For those readers who do not know, then the simple answer is that the stated aim of the WTO (World Trade Organisation) is to promote free trade and stimulate economic growth. To me it is just another organisation biased towards rich countries and huge multinational companies trying to protect their businesses and become richer, with no real regard to smaller countries who basically have less negotiating power within the WTO.

Why does the Bahamas have to become a member of the WTO? What happens if we do not join? Will the US implement restrictions stopping Americans using their credit cards in the Bahamas; will we not be able to send US dollar drafts over to our children studying in the US; will Bahamian retailers be stopped from importing goods from the US or other WTO member countries? I don’t know the answer to these questions, but would like to know what the real ramifications are for our country should we choose to opt out of the WTO. What are the positives and negatives, explained in simple terms, so that an average Bahamian like myself can understand?

Assuming the possibility that it’s too late and we are becoming a member of the WTO, and we have no choice but to implement VAT, then what does this mean for Bahamians? The below is how I understand it, again trying to keep it simple but admitting that there could be errors contained in my ‘logic’ and welcoming clarification from the ‘powers that be’.

The following points are made in regard to retail businesses. However, they could be applied similarly to wholesale/distribution businesses. If Customs duties are not reduced significantly once a 15 per cent VAT is introduced, then in order for retailers to maintain the same gross profit (dollar wise), not gross profit percentage wise (the same gross profit dollar wise needs to be maintained as fixed costs in the retail business will not change or decrease), then the retail price of goods will have to increase as shown in the scenarios below.

In a sluggish economy as we are experiencing today, this will have a drastic effect on many retailers. Some will go out of business and others will see decreases in sales as Bahamians will shop more in Florida, because when they bring in these same goods they will only have to pay the import duty and not the 15 per cent VAT on the value of the goods (the customs brokerage invoice will include the 15 per cent VAT on their brokerage services only, which will be far lower than the VAT on purchasing the actual good locally).

ll the ‘maths’ examples I have seen in the media relate to how the actual VAT is collected by wholesalers, manufacturers and retailers, and paid to government through inputs and outputs, but what about the effect on the actual price of goods once a 15 per cent VAT is introduced with a reduction in customs duties?

Existing situation:

US/Foreign cost of item: $100

Customs duty at 35%: $35

Brokerage, delivery, exchange, etc: $10

Landed cost: $145

Retail price to customer with a 35 per cent gross profit: $223.30

Gross profit for retailer (Retail price less landed cost): $78.30

Revenue to government: $35

Scenario One: 20 per cent duty rate and 15 per cent VAT:

US/Foreign cost of item: $100

Customs duty at 20%: $20

Brokerage, delivery, exchange, etc: $10

Landed cost: $130

Retail price to customer before VAT in order to have the same gross profit dollar wise: $ 208.30, as the existing system ($130 + $78.30)

Plus VAT at 15% ($208.30 x 15 per cent): $31.25

Retail price VAT included to customer: ($208.30 + $31.25) $239.55

Gross profit for retailer: $78.30

Revenue to government: $51.25

In this case, the customer would pay 7.2 per cent more, the retailer would profit the same and the Government would make a whopping 46 per cent more.

Scenario Two: 10% duty rate and 15% VAT

If you do this same exercise with a 10 per cent duty rate on this item, plus VAT at 15 per cent and the retailer maintains the same gross profit dollar wise of $78.30, then the Government would collect $39.75 and the price to the customer after the 15 per cent would be $228.05

In this case the customer would pay 2.1 per cent more, the retailer would profit the same and the Government would make 13.5 per cent more. This scenario is manageable with the consumer only paying 2.1 per cent more but the Government realising its goal of increasing tax revenues significantly.

The point is that prices to the consumer for goods will increase significantly with the introduction of a 15 per cent VAT unless the duty rates drop drastically to somewhere around 10 per cent. Another concern, as has been proven around the world, when new taxes are introduced they rarely go down and more often go up as Governments grow and social obligations balloon out of control. A nightmare scenario would be duty starting out small under a VAT system but slowly growing back to the current rates with the addition of VAT. Once the can of worms is opened this will be a real possibility. It may take five years, a decade or longer, but the risk of it happening is very real. ‘The White Paper’ claims they have no desire

to implement an income tax or corporation tax. However, if the hard questions are not asked now, and risks addressed now with VAT, will these other taxes become a reality in the future as well?

I am not afraid of change and appreciate that perhaps our tax system needs to be closely looked at. However, the argument that other countries in the Caribbean have successfully introduced VAT really doesn’t carry much weight with me. The Bahamas has a very unique situation, with a very close proximity to Florida. We have tremendous air and sea transit at reasonably affordable prices between the major islands in the Bahamas and Florida. It should also be noted that we are one of the wealthier countries in the Caribbean with many Bahamians or family members having the ability to travel to Florida to purchase goods. I know firsthand that my business prices must be very close or on par to US pricing in order for Bahamians and foreigners to purchase from me, all the while having to

absorb high duty rates and transit costs from the US.

I would argue that almost all of the other countries within the Caribbean that have adopted VAT are a much longer and more expensive plane ride to

Florida, or simply don’t have the disposable income to travel like us Bahamians, so people in these other Caribbean regions have to just accept the price increases due to VAT. For the most part they have no choice. With VAT and duty rates above 10 per cent, I fear our Bahamian customers will travel to Florida to shop and bring items back much cheaper, even after paying the 6 per cent Florida sales tax.

The Holy Grail is to put in place a tax structure that gives Bahamian businesses the ability to price similar to US, nudges the Bahamian consumer to buy locally and increases tax revenues to the Government.

Again, being a humble, average Bahamian, I fully accept that perhaps the below makes zero sense, but it would be wonderful for the Government to respond as simply as possible as to why the below will not work:

• All businesses have to get a Business License ....on that license, specify what your business will be selling, so if you are selling appliances you cannot sell cars for example. This must, of course, be strictly enforced

• Reduce the duty rate to 10 per cent for most items, and businesses can only import those items specified on their Business License.

• Introduce 15 per cent VAT

• Charge individuals who shop abroad and bring these items into the Bahamas high import duty rates (current rates could remain, for example, where most items are 45 per cent-plus).

• This means that even though you can buy your appliance cheaper in Miami you have to pay shipping costs plus the high duty rate (use 45 per cent duty as an example)

• This will mean it will be cheaper for Bahamians to buy from a local retailer than going to the expense of buying in Florida and having to pay the higher import duty rate

• I am sure the Government would still collect more revenue but, more importantly, retail businesses would survive and, indeed, grow and prosper as sales would increase not decline

• Minimise the annual Business License fees to a small processing Business License fee structure to be made up by scenarios listed above showing the Government will take in more revenues overall.

Let’s not forget that besides the above showing the Government will take in more that it is currently taking in now with a 10 per cent duty, 15 per cent VAT tax structure, it will also have a whole new massive revenue stream with the introduction of VAT on services.

Make no mistake, regardless of how the Government chooses to move forward, the net result will be they will be taking more money from the people’s pockets and putting that money in the Government’s pockets. Our goal as a people is to challenge them to make the right decisions so as to minimise the amount of additional taxation that occurs while allowing enough of an increase to the Government’s revenues to fund its financial obligations. Rest assured that any excess revenues above and beyond what is needed will not be given back to the people, either directly or indirectly.

Not sure if anyone will have read this, but if you have, thank you for your time. Sorry if I have made things as clear as mud in regards to VAT, and I encourage you to get around a table with family, friends, business peers, heck, bounce ideas off your potcake if needed, but get brain storming because in less than a year there could be major tax reform that drastically changes your country and, ultimately, you and your families’ lives.\

Oh, and don’t make it a political discussion/argument. It’s not about that; it’s about us, the people, as a whole and our voice, not the powers that be and which party they represent. Anyway, that’s my two cents (it used to be five cents but times are tough).Get talking!

Raymond Simpson Jr (Last names Bethel and Smith on my Mother’s side)

July 19, 2013