By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Government is hailing its VAT rate cut for producing a 62.8 percent year-over-year increase in revenues to $299m for the three month period that closed at end-March 2022.

The Davis administration, in its 2021-2022 third quarter “fiscal snapshot” and budgetary performance assessment, asserted that slashing the rate to 10 percent and broadening the VAT base through eliminating multiple tax breaks had combined to drive a significant revenue increase for the Public Treasury.

“Despite the reduction in the nominal VAT rate, receipts increased by 62.8 percent for the three months to end-March 2022 to $299m as compared to $183.5m in the same period of the prior year,” its analysis said.

“When compared to pre- COVID-19 and pre-Dorian VAT collections of 2019, VAT collections increased by $95.2m (46.8 percent).... The growth in VAT receipts is the result of the widened tax base, which allowed for higher collections of VAT on inelastic goods formerly zero rated as ‘breadbasket’ items.”

Ministry of Finance data showed that the Government collected $126.8m in VAT for January 2022, representing a 69.7 percent hike on the $74.7m received in the same month the prior year when tourism and economic activity were only just starting to emerge from COVID-related lockdowns and other restrictions.

Still, January’s VAT collections were ahead of the $113.2m obtained during the same month in 2020, which was prior to the pandemic striking, and the $101.2m received in 2019 - a period before both Hurricane Dorian and COVID-19. VAT collections for February and March 2022 both came in at similar numbers, $85.8m and $86.4m, respectively.

Both figures were substantially higher than the 2019-2021 period. February VAT collections over that three-year period ranged from $47.9m to $52.3m, while for March the figures stayed between $53.9m and $61.1m. The Davis administration is thus arguing that the rate cut from 12 percent to 10 percent, and eliminating its Minnis predecessor’s multiple exemptions and ‘zero ratings’, has boosted government revenues as it predicted.

However, other factors are also at work. There is the Bahamian economy’s continued rebound and faster-than-expected recovery from COVID-19. And this nation’s regressive, consumption-based tax system means that during a period of soaring prices and inflation - as is occurring now - the likes of VAT and import tariffs generate more revenues for the Government because they are being levied on higher prices.

And it may still be slightly premature to pronounce on the VAT rate cut, and impact from the expanded tax base, due to timing differences between when businesses collect VAT and when they file their returns/make payment to the Department of Inland Revenue. 

Companies have to file and pay by the 21st of the following month, meaning that January’s VAT revenues reflect monies that were actually collected over the Christmas holidays and rest of December - a period when economic activity and transactions peak.

This is why the $126m collected in January is almost 50 percent higher than what was received in February and March 2022, which represent VAT collected by companies in January and February, respectively. VAT collected by companies in March will only be remitted to the Government in April, data for which has not yet been released.

March is a key month, as it represents the first time that quarterly VAT filers will join their monthly counterparts in submitting returns and payments to the Government. As the first month when all VAT filers will be providing returns under the new 10 percent/broad-based structure, it will be a key gauge of whether the Davis administration’s strategy has paid-off from a revenue, administration and compliance perspective.

Still, the VAT trends look encouraging. And the extent of the year-over-year VAT revenue hike for the 2021-2022 fiscal year’s third quarter far exceeded the rate of increase in the Government’s overall revenues. The first nine months indicate further progression toward the peak figures experienced pre-pandemic and pre-hurricane,” the Ministry of Finance said.

“Third quarter revenues of fiscal year 2021-2022 were an estimated $601.2m, a period-on-period increase of 22.4 percent. Similar to the improvements in the first and second quarters, the increases were largely explained by VAT and excise tax collections.” Total revenues for the third quarter in the prior fiscal year, when the economy was still rebounding from COVID-19, stood at $491.2m - a difference of $110m.

Turning to the impact for the first nine months of the 2021-2022 fiscal year, the Ministry of Finance added: “During the first nine months of fiscal year 2021-2022, total revenue receipts increased by $617.6m (50.2 percent) to $1.847bn as compared to the prior year, and represented 79 percent of the budget target.

“The development in revenue performance was supported by increases in tax revenue of $526.4m (50.9 percent) to $1.561bn (77.3 percent of budget) while non-tax revenue expanded by $90.9m (46.5 percent) to $286.6m (90 percent of the budget).

“Notwithstanding a reduction in the nominal VAT rate from 12 percent to 10 percent in January 2022, VAT receipts increased by $366.3m (78 percent) to $836.1m or 90.3 percent of the budget.”