The Bahamas Federation of Retailers (BFR) has said that VAT “exclusive” pricing, as opposed to VAT “inclusive” pricing, is essential to the success of the government’s attempt at reforming the existing tax structure.

With VAT implementation only two months away, the BFR is appealing to the government and to the wider public to seriously consider switching to the “exclusive” pricing model, saying that this was the government’s original position when they first proposed the tax.

In a press release, the BFR said that VAT “inclusive” pricing means that the advertised price already includes the 7.5 per cent VAT, but “it imposes a massive administrative cost on businesses as everything in the country will need to be re-priced, re-ticketed, reprinted or relabeled”.

“Everything you buy and sell!” the BFR said. “Just imagine how much work we are talking about and at what time of the year this work is being requested, the busy holiday period. VAT inclusive pricing also hides the tax from the customer, just as duty used to be and still is a ‘hidden tax’, because the customer is not aware of the portion of the price that is going to the government. If transparency and accountability are to be considered virtues in our democracy, then they must exist in taxation as well. By including the tax, the government is hiding its ‘cost’ to the Bahamian people. In the 21st century, this is an archaic approach to taxation and something that, the world over, governments are moving away from. Customers and taxpaying citizens alike should have knowledge of the true price and true tax of a good or service. With inclusive pricing, this is hidden from the paying customer.”

According to the BFR, this will take a toll on companies over the holidays.

“We are talking about thousands of hours of labour that companies will have to request of their employees during the holiday season in order to effect this transition. Essentially, this approach would ensure that the administrative costs of VAT compliance will be incredibly and unnecessarily high. Many Bahamian businesses don’t have POS systems, so they will have to manually re-price everything. Yes, the government has given an extension for re-pricing, but that will cause confusion for customers as depending on which store they are in, they won’t know if that particular store has ‘inclusive’ pricing already in place or if VAT will be added at the register. With any tax reform, high administrative costs associated with compliance translate into a lack of compliance, thus reducing the effectiveness of the tax’s implementation and collection. This is not an outcome that benefits the Bahamian people or Bahamian businesses or the Bahamian government for that matter. Wherever possible, government should make tax reform as simple and straightforward as possible for it be effective. VAT inclusive pricing fails that test.”

The BFR said that “exclusive” pricing simply means that the government allows businesses to keep all pricing on items, all menus, and all existing lists of service charges the same, but informs the public that any business registered for VAT and displaying their VAT certificate as of January 1st 2015 is legally obligated to charge the 7.5% VAT at the register at the time of the transaction.

“With VAT ‘exclusive’ pricing, businesses do not have to dedicate thousands of hours of labour and administrative costs to re-pricing, relabeling, re-ticketing and reformulating their entire pricing structure,” the BFR said. “As of January 1st, they simply charge the government’s 7.5 per cent tax as the law mandates. Every customer will know, that the price of the item is as it is on the label, but will then have 7.5 per cent VAT automatically added at the checkout point. Bahamians are very used to this simple reality because most Bahamians have experienced this when they shop in the United States. It will not be a totally new experience for them. Canadian and American tourists are also used to this.”

The federation also said not all POS systems are “VAT ready”: “Most need a lot of reprogramming to be VAT ready if the government goes with the ‘inclusive’ model. Others will simply need to be discarded and new software will have to be purchased and taught to the staff. Those administrative costs can and will add up and that will make the Bahamas a more expensive destination than it already is, for locals and tourists alike. However, if the government went with exclusive pricing, 99 per cent of existing POS software has the ability to add a 7.5 per cent tax to the final total of the bill.”