December 1, 2023

Healthy Choice

Healthy Choice The Only Solution

‘Tremendous ignorance’ on VAT breadbasket row



Tribune Business Editor

[email protected]

The Coalition for Responsible Taxation’s (CRT) head has slammed “the tremendous amount of ignorance” shown by Bahamian politicians from all sides in the continued debate about eliminating VAT on so-called ‘breadbasket’ items.

Gowon Bowe, who led the private sector group in the run-up to VAT’s 2015 implementation, told Tribune Business he has “extreme difficulty” with why some cannot see that zero rating/exempting these goods from the now-10 percent levy “is counter-productive to what the objective is”.

Removing VAT from goods such as flour, corn beef, grits and tomato paste merely gave a tax break to those who could afford to pay the tax, he reiterated, which further worsened the unfairness of what is already a regressive consumption-based tax that imposed more of a burden on low income Bahamians.

Pointing to multiple studies and empirical evidence that all favoured The Bahamas maintaining a broad-based, low-rate and efficient VAT with minimal zero ratings and/or exemptions, Mr Bowe said the consensus was that redistributing what wealthier persons paid in VAT on breadbasket items to the poor via social security assistance was a better, more targeted way of assisting those struggling with the cost of living.

Calling for the adoption of “a Robin Hood mentality” when it came to redistributing some VAT collections, he argued that the breadbasket item debate must be approached “from the point of knowledge, study and information, not uninformed, ignorant and emotional”. The real question that should be asked, the Coalition head added, was whether the Davis administration had reinstated the RISE social security initiative to effect such redistribution.

Speaking after a week when calls to yet-again eliminate VAT on breadbasket items provoked a heated House of Assembly row, Mr Bowe told this newspaper: “It disappoints me, because our politicians demonstrate a tremendous amount of ignorance about policies they should be well-informed about.

“We allow politicisation of matters to overcome the facts and empirical evidence. I may be accused of being somewhat dismissive, but I have extreme difficulty with why people cannot see putting exemptions on breadbasket items is counter-productive to what the objective is.

“If you zero rate breadbasket items, are you solely zero rating it for individuals deemed to be in need, or for everyone and allowing those persons with resources to pay taxes to benefit from tax concessions also.” Mr Bowe said VAT zero ratings and exemptions were a poor, inefficient mechanism for targeting assistance to those who required it because it provides tax breaks to everyone – rich and poor.

And, with VAT and other regressive consumption-based taxes already disproportionately impacting lower income Bahamians because they spend a greater portion of their earnings in taxes, he added that blanket tax breaks that benefit all only served to further the system’s inequity.

“If I grant tax concessions, I am worsening that progressivity because I am granting further exemptions to individuals already benefiting from a regressive tax system who are low income earners,” Mr Bowe told Tribune Business.

“The argument between the political parties is seriously misguided. The argument should be: Did the Government honour the commitment to implement the RISE programme or its equivalent, where it would redistribute the excess revenues from those who can afford to pay to those who have difficulty to pay.”

Using the example of a $100 spend at the food store, Mr Bowe said some $7.50 would have been paid in VAT if this was fully spent under the low-rate, broad-based VAT model introduced by the Christie government in 2015. Its Minnis successor, though, in 2018 raised the VAT rate to 12 percent while implementing a host of exemptions and zero ratings on breadbasket items, medicines and the like.

With breadbasket items said to translate into up to 40 percent of food store sales, the Coalition chief said this – and the 12 percent rate – turned into $7.20 in VAT on a $100 spend. The difference with the initial 7.5 percent was negligible and, with the Davis administration reverting to a 10 percent, broad-based VAT with no zero ratings and exemptions, that results in $10 VAT becoming payable.

While this represents a $2.80 VAT rise from the Minnis administration’s model, Mr Bowe said the latter ignored the fact that wealthy persons were not only enjoying the same tax break on 40 percent of food purchases but likely spending far more than lower income persons per grocery store visit. Now, the $2.80 difference can be redistributed to help those struggling with inflation and the soaring cost of living.

“We need to tax all persons and implement the Robin Hood mentality of taking from those who have and redistributing to those who don’t have,” Mr Bowe told Tribune Business. “I don’t understand how it cannot be grasped that the wealthy person, their consumption of breadbasket items is going to be higher than persons on the margins because they have more to spend….Granting them that exemption is wholly inefficient in addressing the system of inequality that exists.”

The Opposition has frequently sought to portray the Government as heartless and uncaring for refusing to eliminate VAT on breadbasket items as a means to offset some of inflation’s impact, but Mr Bowe argued this – and associated rows – had more to do with politics than any real care or empathy for lower income Bahamians.

He pointed out that multiple studies conducted for the Government and private sector by Compass Lexecon and Oxford Economics, respectively, as well as agencies such as the Inter-American Development Bank (IDB), had all recommended that a low-rate, broad-based VAT was the preferred choice for The Bahamas with zero ratings and exemptions kept to a minimum to maintain the tax’s integrity and efficiency.

“The quality of our debate, this is where we don’t realise the rest of the world is watching and listening,” Mr Bowe said. “When we’re having these discussions and debates, we should be demonstrating clearly from the point of knowledge, study and information. Not uninformed, ignorant and emotional.”