By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Ministry of Finance’s top official yesterday said the VAT rate cut “is not a reckless, populist act” as he revealed the Government has outperformed first half revenue targets by $160m.

Simon Wilson, the financial secretary, defended the two percentage point rate slash as “a measured act to improve the livelihoods of ordinary Bahamians” that will have a “neutral to slightly” positive impact on government revenues during the second half of the 2021-2022 fiscal year.

“Based on all the calculations, this reduction is going to be revenue neutral and actually slightly positive in terms of revenue yield,” he told a press briefing at the Prime Minister’s Office. “It’s not going to result in an increase in the fiscal deficit. This is not a reckless, populist act.”

Mr Wilson declined to give figures for the estimated revenue and deficit impact as a result of cutting the VAT rate from 12 percent to 10 percent, and eliminating most of the zero ratings and exemptions. However, he said the Government’s revenue performance had continued to maintain the 2021-2022 first quarter trends where they were $92m ahead of forecast.

Describing the estimates inherited from the Minnis administration as conservative or “suppressed”, Mr Wilson added: “Since that time we got an additional $80m over projections to the end of December. We’ve kept from January to June the same, which is suppressed. We believe all things being equal we will exceed revenue targets for the next six months....

“If you look at our revenue performance against forecasts, we’re $160m above forecast... We’re very excited with what we see in terms of the potential for revenue yields. On the expenditure side, the overhang in terms of liabilities and so forth has been reduced. It has not been reduced to a bare minimum, but it has reduced considerably from when I came back into office.”

Suggesting that the Government’s fiscal strategy was already producing “green shoots”, Mr Wilson said the “back dating” of the international financial services industry’s reinstated VAT ‘zero rating treatment’ to July 1, 2019, will eliminate “significant tax liabilities” many providers were facing after the Government switched them to ‘exempt’ status.

And the end to “domestic” zero ratings was “really simplifying the tax system, making it more equitable for everyone and reducing the burden on small businesses”. Mr Wilson said small grocery stores, where breadbasket items account for a significant amount of their sales, will no longer have to wait on VAT refunds from the Government because those items are VAT-able.

He added that the VAT rate cut, and associated changes, were part of the Government’s efforts “to bring in fairness and equity to the the tax system” by focusing on a strategy that broadened the tax base while lowering the rates.

Mr Wilson also suggested that the ‘zero rating’ of medicines by the previous administration, which has now ended, primarily benefited the pharmaceutical suppliers because some 70-80 percent of prescription drugs were distributed for free or at cut prices by the public healthcare system.

“I didn’t really understand the context of that,” he said. “If you look at the price levels of medication, there was no drop in the price levels or inflation with respect to medication. Those savings went elsewhere; they didn’t go to the consumer.”

Mr Wilson also described the recently-implemented Public Procurement Act, introduced by the Minnis administration, as “impractical” for increasing the bureaucracy associated with purchasing goods and services required for the Government’s daily functioning.

Arguing that regulations, guidance manuals and training had all been absent, and that both the legislation and online e-procurement portal will have to be amended and upgraded, he added: “Let me give you an example. Any procurement under the Act has to be out for 30 days.

“So imagine this. You want to buy disinfectant spray, which is a homogeneous good, Lysol. Everybody knows what Lysol is and so forth. You get three quotes. You have to hold those quotes for 30 days before you make the purchase. That’s a very impractical approach to doing anything.”

As for the online portal, Mr Wilson said vendors were complaining that they were receiving information on bids ill-matched to their interests. He added that companies were “feeling disconnected from governance” by the portal’s inefficiencies and inability to obtain the right details on upcoming tenders.