Opposition’s last-ditch VAT change bid fails

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MINISTER of Economic Affairs Michael Halkitis. Photo: Donovan McIntosh/Tribune Staff

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A Cabinet minister last night slammed the Opposition’s bid to introduce last-minute changes to the VAT Bill as the two sides continued to trade blows over the rate cut and ‘zero ratings’ end.

Senator Michael Halkitis, minister of economic affairs, issued a statement describing the Free National Movement’s (FNM) arguments in favour of retaining multiple VAT breaks - especially those on ‘breadbasket’ food items and medicines - as “misguided” and “ill advised”.

The statement was released just minutes after a motion to amend the VAT Bill, introduced in the House of Assembly by Opposition leader Michael Pintard, was soundly defeated. In truth, this was always likely to be the outcome given the Government’s vast majority in Parliament, and some observers will likely view it as little more than a political stunt.

The Government will also likely have known what was coming with the House subsequently passing the VAT Bill, without the FNM’s proposed amendments, just minutes after Mr Pintard’s intervention. Mr Halkitis’ statement will likely have been prepared in advance, with its release waiting for the Bill’s passage.

“Despite the abundance of empirical evidence, and being denounced by local and international experts, the Opposition continues to peddle its misguided tax policy by attempting to pass an 11th-hour amendment to the government’s VAT Amendment Bill,” Mr Halkitis said.

He argued that to retain the previous administration’s 12 percent VAT rate, together with its “ill advised” multiple exemptions and zero ratings, would “upset that balance” the Government was seeking to achieve via the supplemental Budget.

Sticking with the current regime, which is set to be repealed come January 1, 2022, “would further deepen the Government’s revenue shortfalls, and also hinder our ability to support middle class Bahamians and the most vulnerable populations in our country through the relief measures proposed in the supplementary Budget”.

Mr Halkitis continued: “The evidence has shown that the last administration’s ‘zero rating’ policy allowed the rich to accrue more savings than any other group while lower income households accrued the least benefits.

“The Bahamian people should consider the Government’s approach holistically. Working together, each element is needed to support our goals for this supplementary budget. We are eliminating zero rated items to ensure that the application of VAT is as fair and equitable as possible.

“Simultaneously, we are introducing an overall decrease from 12 percent to 10 percent to bring net savings to every household and business, stimulating consumption and protecting against rising global costs.”

He added that measures contained in the supplemental Budget, such as the reintroduction of the RISE programme and its conditional cash transfers (CCT) to the most vulnerable Bahamians, will “allow us to provide more targeted relief that does not have the unintended consequence of disproportionately benefitting higher income households more, which was inherent in the previous administration’s approach”.

This refers to the fact that wealthy Bahamians, who spend proportionately less of their income on food, were benefiting as much as their lower income counterparts from the VAT tax breaks on so-called ‘breadbasket’ foods and medicines. These will now be replaced by more targeted social security assistance.

“The fact that the Opposition is taking this opportunity to rehash their failed, and unsupported, argument in favour of retaining a haphazard, deficit-growing approach that benefited big businesses and the wealthiest households more is only further proof of their true priorities,” Mr Halkitis said.

“The Opposition is opting for political theatre instead of empirical evidence and expert advice. They are trying to score points instead of substantively addressing the needs of the Bahamian people.”

However, the Opposition stuck to its guns in arguing that the Government’s decision to slash the VAT rate to 10 percent across-the-board, and eliminate the zero rating and exemptions regime, will penalise the poor while providing even greater tax relief for the wealthy.

In particular, they zeroed in on the Government’s decision to eliminate the 12 percent VAT rate on the portion of real estate transactions valued at $2m and above as giving a tax break to wealthy foreign real estate buyers who have the ability to contribute more.

Mr Halkitis previously explained this is being done to achieve one, uniform 10 percent VAT rate while also being mindful of closing costs. However, his predecessor in the minister of state for finance role, Kwasi Thompson, said it was “mind boggling to me that the Government would prefer to decrease VAT for millionaires to purchase property and increase VAT on breadbasket items and medicines.

“Wouldn’t it be better for the poor to keep the VAT off the breadbasket items and medicine, and use the money you will get from the millionaires to offset this?” Mr Thompson asked, producing newspaper articles showing that realtors did not object to the 12 percent rate above $2m.

“They were OK with the FNM government increasing VAT on millionaires, but you have said that despite what they said, you are going to reduce it and add VAT to breadbasket items,” he said. “If that’s your priority, that’s your priority.”

This brought an intervention from Obie Wilchcombe, minister of social services and urban development, who accused Mr Thompson of trying to give the impression the Government was seeking to “assist a particular group of persons in our community”.

“That’s not our intent,” the minister said. “He’s trying to say we’re adopting one of the FNM’s policies of taking care of the rich. That’s not our policy; that’s your policy.” Mr Thompson retorted: “The facts are the facts. The FNM increased VAT for properties above $2m. The FNM administration took VAT off breadbasket items. You are resuming that.”

Adrian White, the FNM’s St Ann’s MP, said data supplied by the Bahamas Real Estate Association (BREA) showed some 65 properties in The Bahamas have sold above $2m for 2021 to-date. Stripping out the portion below $2m, he argued that the Government was foregoing a 12 percent rate on some $219.428m worth of real estate.

This, he added, would have yielded some $4.358m in extra revenue for the Public Treasury. Giving an indication of what this sum could have been used for, Mr White said it could have financed building 38 homes in the Carmichael Road subdivision at $117,000 apiece, or 29 homes priced at $150,000 each in other government subdivisions.

He accused the Government of “trying to experiment” with Bahamians through its 10 percent VAT cut, and treating them as “lab rats”.