The Value Added Tax (VAT) that the government says is the preferred option to replace our current system of Customs duties is a general consumption tax assessed on the value added to goods and services over a series of transactions.
It is a general tax applied to commercial activities involving the production and distribution of goods or the provision of services. It is a consumption tax because it is borne ultimately by the final consumer.
In Europe, for example, the tax is collected via a system whereby taxable businesses can deduct from their VAT liability the amount of tax they have paid to other taxable businesses on purchases for their business activities.
This is clearly a complicated process, and would likely be made even more complicated ﾗ were it to be introduced here ﾗ by the Byzantine mind of the Bahamian civil service.
But why are we even discussing this now? Our first step should be to decide whether we want, or need, to make such radical changes to our tax system. There is a school of thought that this decision is being forced upon us by globalisation… that we must dismantle our system of import duties to join international trade blocs.
But this is not necessarily the case. As several experts have frequently pointed out, there is no absolute imperative for the Bahamas to join the Free Trade Association of the Americas, even if that grouping is actually created ﾗ which looks less and less likely in the near term.
And even if we accept membership in the FTAA as inevitable, there is nothing to say we cannot negotiate retention of our present tax system, since it has to bearing on trade.
This leads to the suspicion that the interest in tax reform displayed by both FNM and PLP governments has more to do with raising extra revenue to support our already bloated and unproductive bureaucracy, and to further subsidize our inefficient public corporations.
Perhaps a radical reform of our basic economic structures would be preferable ﾗ and more useful ﾗ than an overhaul of our tax system. But at the very least, this is a debate we need to have.
Editorial, The Nassau Guardian
