By KHRISNA VIRGIL

Deputy Chief Reporter

kvirgil@tribunemedia.net

AMID lingering questions regarding Value-Added Tax (VAT) collections, Prime Minister Perry Christie was on the defensive yesterday as he explained how his administration handled $1.14bn in VAT revenue accumulated during 2015 and 2016, insisting that not one dollar of the money has been “frittered away” or spent “surreptitiously”.

Finally giving an extensive explanation of VAT revenue since the matter was reignited following the Progressive Liberal Party’s (PLP) convention in January, the Prime Minister told parliamentarians it was a “worrisome” and nonsensical misconception that his administration mishandled VAT money. This issue, he said, needed to be put to rest once and for all.

VAT was implemented on January 1, 2015, at a rate of 7.5 per cent on most goods and services.

According to Mr Christie, while VAT collections are automatically sent to the Consolidated Fund, where revenue is “indistinguishable” and not earmarked for any one purpose, it goes toward three categories of reduction.

These include tax reduction, funding of expenditure and deficit and debt reductions being the residual outcome. He was adamant that the government had been “crystal clear” from the onset that the administration’s programme for tax reform had manifold objectives.

While VAT did yield more than $1.1bn, Mr Christie said there was a vast impact on recurrent government revenue due to the elimination of the hotel occupancy tax, VAT refunds and other tax reductions. These amounted to a total reduction of $344m in revenue foregone since the introduction of VAT, but the net impact on revenues to the government was $756m.

He told the House that in summary, 40 per of the VAT revenue went towards reducing the deficit, 30 per cent replaced revenue foregone from tax reductions and the remaining 30 per cent went towards general expenditures.

To further support transparency, the Prime Minister also announced the launch of a new website - understandingVAT.org - intended as a new resource for Bahamians to better understand how VAT was spent.

“As I mentioned earlier, some $1.14bn was collected in respect of VAT in 2015 and 2016. Of this total, the Department of Inland Revenue collected $726m: $316m in 2015 and $410m in 2016. The department also refunded some $20m in VAT over these two years. The Department of Customs collected $415m over the two-year period: $209m in 2015 and $207m in 2016.”

He also said: “Every single dollar of revenue is fully accounted for each and every year and is subject to audit by the independent Auditor General. As such, not one dollar of VAT revenues collected over the past two years has been frittered away or spent surreptitiously. That is a grave and nonsensical misconception that, once and for all, must be put to rest.

“This communication has also reiterated the various objectives of revenue enhancement through VAT implementation, and has highlighted, with supporting data, the extent to which new VAT revenues have: first, facilitated additional government spending in priority areas and in response to adverse economic and natural events; second, accommodated reductions in other major taxes for consumers, business and property owners; and third, directly contributed to significant reductions in the GFS deficit over the past three years.

“Put further in layman’s terms, if I reduce the amount by which my expenditure exceeds by revenue, the less money I borrow. This is a slowing of debt accumulation. As my revenues start to exceed my expenses, which are projected to take place fiscal year 2018/2019, there would be an actual reduction in debt. However, to be clear, every year an element of expenditure is the servicing repayment of government debt and therefor if the government has been able to repay debt without having to borrow as much, we are on the right fiscal trajectory.

“I have made it clear today that we believe it is the government’s responsibility to explain as clearly as possible how the revenues that come into our government are utilised. This communication is one way of reaching out to citizens,” Mr Christie continued.

“Our nation has faced and continues to face important economic and social challenges. Through its Charter for Governance pursued during its current mandate, my government has demonstrated that it has the vision for the future and the action plans needed to improve the quality of life for all Bahamians. A great deal of fundamental and needed change has been initiated and implemented over the past five years. The government is steadfastly dedicated to further pursuing and completing its change agenda in the period ahead.”

Money lost

Mr Christie gave a breakdown of the revenues that were lost due to tax reductions.

“With the implementation of VAT in January, 2015, and with the fiscal 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.”

According to Mr Christie, among the measures announced were: a 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 in Abaco, and the east and west sections of Grand Bahama, Eleuthera and Bimini were added to the list of qualifying areas.

He also said that duty concessions under the City of Nassau Revitalisation Act were extended for another year; there was 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 six 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 and a harmonisation of commercial property tax rates at a lower level of 0.75

per cent and 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.

Stamp duty on real estate transactions was lowered to 2.5 per cent, with VAT applying only to properties above $100,000.

Mr Christie said in the 2016/17 budget, the government’s efforts to provide additional tax relief for consumers, businesses and property owners continued with an 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 Revitalisation Act for another year; and real property tax concessions granted to residential properties were extended to commercial properties among other things.

These cut backs resulted in a loss of $134.9m between 2015 and 2016 in customs and excise duties and considerable losses in various real property tax fees.

Additional funding

Mr Christie said over the past two years, the government was placed in the position to provide additional funding for some important social and public programmes.

These, he said, were in national security, health, education and social services.

“Since the implementation of VAT, the government has hired an additional 99 police officers at $1,782,000 per annum - during the fiscal year 2015/2016; it has hired an additional 166 Defence Force officers at $2,988,000 per annum - during the fiscal years 2015/2016 and 2016/2017; it has employed 347 more teachers and education support staff at $8,400,500 per annum - during the fiscal years 2015/2016 and 2016/2017; and it has hired 103 additional doctors and health professionals at $2,932,550 per annum during fiscal years 2015/2016 and 2016/2017.

“These vital expenditures would not be possible without VAT revenue. Nor would it be possible to service the debt associated with the acquisition of the vessels from the RBDF, at $25m a year, or purchase a new immigration, border control and passport system at a combined cost of $33m, of which $5.8m was paid in this fiscal year.

“Nor would it have been possible to purchase a new Road Traffic system at $8.3m, of which $1.9m has been paid off this fiscal year, and four new Doppler radars at $23m of which $7 million would be discharged this fiscal year,” Mr Christie said.