By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Government believes most imported goods will experience a reduction in their “tax burden at the border” as a result of tariff cuts related to Value-Added Tax’s (VAT) introduction.

John Rolle, the Ministry of Finance’s financial secretary, told Tribune Business that the Government was eyeing a 17 percentage point cut in import duty/tariff rates, on average, to ensure that the additional VAT levy did not result in significant tax increases at the point of importation.

Adding that goods currently attracting a 15 per cent import duty would see this rate drop to zero once VAT is implemented on July 1, 2014, Mr Rolle said the new tariff schedule would “not conflict” with either the Bahamas’ Economic Partnership Agreement (EPA) commitments or its likely obligations under the World Trade Organisation (WTO).

And, while unable to give a firm date for when the VAT legislation and accompanying regulations would be released for private sector and Bahamian public consumption, Mr Rolle pledged it would happen “very soon”.

The Government missed its latest release deadline of the first week in October, but Mr Rolle said the Ministry of Finance and its VAT Implementation team had completed all their “heavy lifting”. It now simply awaited a policy decision from the Christie Cabinet.

“It’s fair to say that in many cases the tax burden on goods at the point of Customs will fall in many cases, “ Mr Rolle told Tribune Business, “and in a few cases may be close to what they will see now.”

To alleviate the burden of ‘double taxation’ on the Bahamian public and private sector, the Government is aiming to roll-back Customs (import) duties simultaneously with VAT’s implementation, though both will be levied at Bahamian borders.

Mr Rolle confirmed that there will be “about a 17 percentage point drop in duty rates” on average with VAT’s arrival. Most businesses, though, will likely reserve judgment until they see a revised Tariff schedule and the new rates impacting their firms and sectors.

Customs tariffs are being reduced by more than VAT’s 15 per cent rate, due to the fact the latter will be levied upon both a product’s landed cost and its import duties. It is unclear, though, whether Stamp Duty (normally 7 per cent) will still be applied to imported goods, and if VAT will be charged upon it.

The answer, though, seems likely to be yes. And a quick Tribune Business calculation shows that rather than reducing the tax burden, VAT’s arrival – and 17 percentage point duty reduction – may slightly increase it in some instances.

Take a product landed (CIF) in the Bahamas for $100. At a current duty rate of 45 per cent, it would cost $145 to bring that good into the Bahamas. If the duty rate was dropped by 17 percentage points to 28 per cent, then cost plus import tariffs would total $128. Imposing a 15 per cent VAT on top of that would add $19.20 to the cost of that product, taking the total expense to bring it into the Bahamas to $147.20 – some $2.20 higher than currently.

The reduction in import duties will also only apply to 30 per cent of Bahamian economic activity, and will not help reduce the impact on the services sector, which accounts for 70 per cent of GDP.

Elsewhere, Mr Rolle told Tribune Business that the VAT-related tariff cuts would not interfere with, or undermine, the Bahamas’ obligations under either EPA or the WTO.

“The changes that will occur, for all intents and purposes, they are unrelated to what the Government’s offer will look like under those obligations,” Mr Rolle told Tribune Business. “The Government’s obligations, and timing of delivering on those obligations, is not necessarily July 1, 2014.

“The rate reductions themselves will be mindful of how the Government’s obligations may look, but they may not be known any time soon. They will not conflict, though. They won’t interfere.”

Mr Rolle added that if the Bahamas’ EPA and WTO obligations required it to deliver on tariff rates lower than in the VAT schedule, it would do so. By the same token, the Bahamas could also cut certain tariff rates lower for VAT than it signed up to under its trade liberalization commitments.

“It’s conceivable that there may be rates in the VAT regime lower than the ceiling the Bahamas commits to in WTO, and that’s fine,” Mr Rolle said. “The reform with VAT goes further than WTO itself – it’s about broadening the tax base and shifting the dependency.”

Asked when the VAT regulations and legislation would be published, Mr Rolle responded: “I would say very soon. Again, the Cabinet is mulling over the legislation, and once they have concluded that process and are comfortable with the shift in policy framework, they will give the green light to share with the public.

“There is no heavy lifting to do for the Ministry of Finance and VAT team for the legal framework. It’s a policy decision.”