By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Democratic National Alliance's (DNA) ex-leader yesterday revealed the VAT hike is "giving me second thoughts" about making a further major investment in the Bahamas.

Branville McCartney told Tribune Business the Budget's increased taxation measures, and the likely negative impact on consumers and businesses, had left him uncertain whether to pursue a commercial real estate opportunity he described as "a deal".

He suggested he was not the only investor wrestling with such a dilemma, which highlighted the 'chilling' effect the 60 per cent VAT rate increase is likely to have on Bahamian entrepreneurs and businesses until the impact has worked its way through the economy.

Mr McCartney branded the 12 per cent VAT rate as "frightening", saying it recalled memories of how sales at his family's pharmacy business dropped 15 per cent when the tax was first introduced in 2015.

He added that Wilmac's Pharmacy was now racing to adjust its systems and pricing to the new VAT rate by July 1, as well as cope with the 'exemptions' introduced by the 'zero rating' of all medicines in the 2018-2019 Budget.

The ex-DNA leader, though, exposed the ongoing uncertainties surrounding the VAT transition by revealing that the pharmacy was ensure whether 'zero rating' treatment applied to both over-the-counter (OTC) and prescription medicines. He said his latest understanding was that this applied to only OTC medicines.

And Mr McCartney suggested the VAT increase, at least not to the magnitude of 12 per cent, would have been unnecessary had the Government "jumped on the bandwagon" immediately following the May 2017 general election to grow and diversify the economy.

He argued that the Government should have introduced a National Lottery and permitted the exportation of marijuana for medical purposes, among other initiatives, and echoed warnings that the Bahamas "cannot tax itself" out of its fiscal and low growth predicament.

With many Bahamians already struggling to make ends meet and pay their current taxes, Mr McCartney said the Government was effectively squeezing a dry carcass when it came to demanding further sacrifice from the lower and middle classes.

Conceding that the Government was "between a rock and a hard place" in its efforts to address the fiscal crisis, the former DNA leader warned that the tax increases will further depress an economy by eroding consumer and business confidence - including his own.

"I am looking at another investment that is a little substantial, but it [the Budget] has now given me second thoughts about investing in my country," Mr McCartney told Tribune Business. "That investment requires payments to come in through rents.

"With VAT increasing it affects everybody's pockets, and I might not be able to get the type of income from that investment as a result of the increase in taxes. It's giving me second thoughts on taking that route.

"Now, that tells me not only myself but other business persons wanting to invest, they're going to take a second look," Mr McCartney continued. "For those investments to work people need to have money in their pockets to pay, and if not you're going to go to your own pocket to pay the bank.

"Right now, that is what I am considering. Should I move forward with this investment, which I wanted to do? It's a deal. But would I be able to get the business upfront that this investment requires to sustain it? That causes me to have a whiskey every night and consider."

Mr McCartney said VAT's introduction at a 7.5 per cent rate in 2015 had both impacted his family's pharmacy and real estate rental business, with many of the latter's tenants falling into arrears - a position many remain in to this day.

"Let me put it this way: I have grown more grey hair as a result of it," Mr McCartney said of his reaction to the VAT rate increase. "It is concerning, because when the first VAT come in at 7.5 per cent a few years ago some of the businesses I'm involved with saw a significant decline in business of almost 15 per cent.

"That was the pharmacy, and in terms of the real estate rentals - commercial and residential - we found that persons were unable to pay their rent. We had a number of persons in arrears, and to this day they are still in arrears. We still have persons trying to catch up. It's difficult when you're two-three months behind, and paying to stay current and catch up."

VAT is a regressive consumption-based tax, which imposes a heavier burden on middle and lower income Bahamians because they pay a disproportionately higher percentage of their wages in taxes. The increase to a 12 per cent rate will thus likely reduce disposable incomes, lower living standards and raise living costs - all of which threaten Bahamian economic growth.

Mr McCartney yesterday argued that the economy has still to fully recover from the 2008-2009 recession of a decade ago, and added that the Budget's multiple VAT 'exemptions' had increased the complexity and administrative cost for businesses - such as his family's pharmacy - that now have to adjust for them.

"I spent a number of hours today at the pharmacy," he told Tribune Business. "We have to change our pricing, put things in the system. The cost of living is going to increase. It's bad now; it will become worse. I'm fearful of it as a businessman.

"It's [the VAT rate hike] something I was hoping would not have been warranted. I was looking forward to the Government helping to stimulate the economy. If they did, we wouldn't have needed the increase. People are losing their jobs, business has not increased and there has not been a significant injection of foreign direct investment apart from Baha Mar."

Mr McCartney continued: "There has not been diversification of our industries. The Government has an opportunity still, but they could have jumped on the bandwagon right away by doing things that are not popular that would stimulate our economy.

"I would have introduced a National Lottery, I would have looked at marijuana exportation for medical purposes. I would certainly have done things to ensure doing business in this country was much easier.... The Government should have been very aggressive, in my opinion, in doing things to avoid having to increase VAT.

"From day one, May 11, they should have been working on ensuring this economy is stimulated and starts to grow. I would have gone out there and put a sign around the world that the Bahamas is open for business. There's a lot of business out there."

Mr McCartney said the 2018-2019 Budget said too little about collecting the multi-million dollar tax liabilities owed to the Government, including the estimated $400-$500 million in outstanding real property taxes that are growing annually.

He urged it to crack down on real property tax delinquents by threatening to seize assets related to outstanding bills, arguing that many who can pay - but choose not to - would then be motivated to come in and settle with the Department of Inland Revenue.

"I do think some measures should be taken to avoid putting this on the backs of Bahamians," Mr McCartney added. "It will hurt the middle class and poor, and the rich will not feel it. It is frightening.

"We will never be able to resolve our fiscal woes by taxing the people. You cannot get yourself out of a recession by taxing the people. Our fiscal woes must be resolved by sound fiscal policies, collecting due taxes, diversifying the economy, capitalising on our natural resources, supporting small and medium-sized businesses and making doing business in this country easier.

"Economic growth, that's what we need. That's how it works. People don't have the money to pay taxes today. You think they will have money to pay come July 1? As a people we're going to have to buckle down, fasten our belts, spend wisely and be very prudent in our financial dealings."