‘Don’t expect to save on clothes after duty cut’


James Smith


Tribune Staff Reporter


ALTHOUGH the Minnis administration hopes Bahamians benefit from customs duty waivers off clothes and shoes for retailers, former government ministers say businesses have historically failed to pass savings from exemptions to consumers.

James Smith, former state minister for finance and Central Bank governor, said Monday: “Politicians like to announce customs duty waivers to give good news with bad news. Though it’s good for a soundbite, when you look at the impact, it’s usually not significant.”

Deputy Prime Minister and Minister of Finance Peter Turnquest acknowledged the problem in an interview on Monday, saying the government will encourage aggressive consumer activism from Bahamians to influence pricing.

“The duty reductions are intended to pass on to the consumer because this is a cushioning measure with respect to the increase in value added tax,” Mr Turnquest said. “It doesn’t work if the businesses themselves take it. It’s not intended for that.”

Any business that sells clothes, shoes or buys apparel, fabric, thread, zippers and buttons can benefit from duty waivers starting next month. It’s a move intended to soften the blow of value added tax’s increase to 12 percent and is aimed toward helping the most vulnerable people in society.

But on a recent television programme, former State Ministers for Finance Zhivargo Laing and Michael Halkitis both expressed scepticism the move would accomplish its goal.

Mr Smith agreed, saying the issue is relevant as the country moves toward the World Trade Organisation (WTO) because declining duty rates won’t necessarily produce lower costs for consumers. As duty rates decrease, other taxes are expected to increase.

“When the duty is removed there is a tendency for the businesses not to lower prices at the same amount but to keep the difference up,” Mr Smith said on Monday. “It’s very difficult to regulate it because the business will always justify it by saying there’s so many items in the overhead and that when they were selling stuff they were just breaking even or they were already giving a break to customers. It’s only the consumer himself who could put pressure on the stores as a group rather than an individual because if it’s just an individual they’ll only turn you around.”

Asked how the government will get businesses to pass on their savings, Mr Turnquest said an education programme will be launched to promote consumer activism. He said social media is a useful medium for organising such activities.

“We want people to get involved in helping us to identify areas where we see price gouging or price taking,” he said. “It is not the intent for the government to pass these savings on to the businesses. At the end of the day VAT is not a tax on the business, it’s a tax on the consumer and we’re trying to protect and cushion the most vulnerable consumer that we have. It’s the most reasonable way for us to create a progressive taxation that people talk about. We’re going to have a very aggressive consumer protection system and education. Historically we know how the pricing order works in the Bahamas. It’s not very sophisticated. For market forces to work it requires an informed consumer and for that information to be widely available so people know what competitive prices and forces are available to them. The Ministry of Finance will be doing some things to try and help the consumer to be educated as to what the landed cost of a product is now and what it ought to be after these measures come into effect so that they can have the power and knowledge to go out and challenge some of these things.”

Bahamas Institute of Chartered Accountants President Gowon Bowe said as opposed to relying on “moral suasion” to influence how businesses price their goods going forward, the government could have “surveyed a sample of businesses and sought pricing strategies confidentially and work out expected reductions.”

“If (there is) no duty,” Mr Bowe said, “businesses have to decide what additional costs of landing are incurred verses online price and landing for consumers.”