$33 million to enhance the financial reporting systems

MINISTER OF FINANCE: The Rt. Hon. Prime Minister

Amid continued controversial public debate surrounding the Value Added Tax (VAT) revenue that was initially implemented on January 1, 2015, Prime Minister Perry Christie said, the revenue accrued from the taxation was applied to three components – tax reductions, funding of expenditure and deficit, and debt reductions acting as the residual outcome. 

 

Additionally, he noted, “the government has embarked on projects costing $33 million to enhance the financial reporting systems and to adopt modern accounting standards to further enhance the quality of information and the format of its presentation.  

 

“VAT has actually contributed to greater transparency through a greater understanding of the Bahamian economy and the support in financing the improvements in reporting of financial information,” said Christie. 

 

Christie, while making a presentation in the House of Assembly Wednesday (March 29) also shared a breakdown of how the $1.14 billion collected was spent over the past two years.

 

He noted that of the $1.14 billion total, the Department of Inland Revenue collected $726 million: $316 million in 2015 and $410 million in 2016.  The Department also refunded some $20 million in VAT over these two years.  The Department of Customs collected $415 million over the two-year period: $209 million in 2015 and $207 million in 2016.

 

“Since VAT introduction the government has announced a number of tax relief measures, which have naturally led to reductions in the Recurrent Revenue of the Government.  

 

“In this context, I would note that the first tax reduction announced was in respect of the Hotel Occupancy Tax that we chose to eliminate at the introduction of VAT, since the latter would now be applicable to hotel accommodations, though at the lower rate of 7.5 percent rather than the previous 10 percent.  

 

“With the elimination of the Hotel Occupancy Tax, some $42.5 million in annual revenue has been foregone, for a two-year total of roughly $85 million or seven percent of the total VAT collections,” said Christie. 

 

Additionally, he noted that some of the tax relief measures realized due to the implementation of VAT included, but were not limited to, a change in the calculation of customs duty from a CIF (Cost Insurance Freight) to a FOB (Free on Board) basis; the elimination of import duties on some items and duty reductions on others, and the maximum duty on motor vehicles from 85 percent to 65 percent.

 

“Stamp Duty on real estate transactions was lowered to 2.5 percent, with the VAT applying only to properties above $100,000; as well, VAT registrants will be able to claim a credit for VAT on transfers whereas they could not do so under the previous Stamp Tax regime.

 

“In the 2016/17 Budget, our efforts to provide additional tax relief for consumers, businesses and property owners, continued with:

• elimination and reduction of  import and excise duties on a number of consumer goods and building materials;

• expansion of tariff concessions for light manufacturing;

• extension of duty exemptions under the Family Island Development Encouragement Act and the City of Nassau Revitalization Act for another year;

• Real Property Tax concessions granted to residential properties were extended to commercial properties; and

• Real Property Tax arrears waivers were granted to owner-occupied properties under $250,000, in certain situations.

 

“Including the fiscal impact of the elimination of the Hotel Occupancy Tax ($85.0m), and VAT refunds ($20.0m) the total reduction is $344 million in foregone revenue since VAT introduction.  Therefore, VAT gross collections over the two year period were $1.1 billion, but the net impact on revenues to the Government was $756 million.”

 

Christie noted that by any measure this feat was a remarkable achievement, while simultaneously maintaining a stable economic environment, attributing it to the support of the private sector.   

 

“VAT was introduced without triggering a major economic contraction despite all of the naysayers prognosticating about doom and gloom.  This is worth repeating. VAT was introduced without a recession and a stable economy has been maintained with the support of the private sector.

 

“The residual amount that went towards expenditure is $256 million of the VAT revenue. In this respect, it is important to note that over the past two years the government has also implemented additional funding for some of our important social and other public programs. The most significant funding focuses on areas such as national security, health, education and social services.

 

“Since the implementation of VAT, the government has hired an additional 99 police officers at $1,782,000 per annum (during FY 2015/2016); it has hired an additional 166 Defence Force officers at $2,988,000 per annum (during FYs 2015/2016 and 2016/2017), it has employed 347 more teachers and education support staff at $8,400,500 per annum (during FYs 2015/2016 and 2016/2017); and it has hired 103 additional doctors and health professionals at $2,932,550 per annum (during FYs 2015/2016 and 2016/2017),” revealed Christie.

 

“These vital expenditures would not be possible without VAT revenue.  Nor would it be possible to service the debt associated with the acquisition of the vessels for the RBDF, at $25 million a year, or purchase a new immigration, border control and passport system at a combined cost of $33 million, of which $5.8 million was paid in this fiscal year.  

 

“Nor would it have been possible to purchase a new Road Traffic system, at $8.3 million, of which $1.9 million has been paid off this fiscal year, and four new Doppler radars at $23 million, of which $7 million would be discharged this fiscal year,” Christie disclosed. 

 

“In summary, 40 percent of the VAT revenue went towards reducing the deficit, 30 percent replaced revenue foregone from tax reductions and the remaining 30 percent went towards general expenditures.”

 

Ultimately, the prime minister noted that it is of grave importance to remain transparent and accountable for any successful democratic governance, hence the significance of his communication. 

 

“Our citizens expect and rightfully deserve a full and clear accounting for the dollars in taxes that they pay to their government each and every year. 

 

“In this respect the government has embarked on projects costing $33 million to enhance the financial reporting systems and to adopt modern accounting standards to further enhance the quality of information and the format of its presentation.  

 

“VAT has actually contributed to greater transparency through a greater understanding of the Bahamian economy and the support in financing the improvements in reporting of financial information,” said Christie. 

 

Published  Friday, March 31, 2017 

 

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