One of the four economists who advised Government on the impact of the introduction of Value Added Tax (TAX) has told business leaders in The Bahamas that an impact study on the effects of such a tax was crucial.
Kelvin Dalrymple, chief country economist with the Caribbean Development Bank (CDB) was speaking at a tax seminar in The Bahamas on New Approaches to Taxation & Tax Administration in The Bahamas: A Framework For Tax Reform, sponsored by The Bahamas Chamber of Commerce and the United States Embassy.
The Bahamas, which is in the process of undertaking a major reform of its tax system and is considering a VAT, is very interested in the Barbados experience which resulted in the introduction of 15 per cent VAT and in the simplification of the indirect tax system.
Providing a background to tax reform in Barbados, Dalrymple said it had started as part of the stabilisation and structural adjustment programme in 1991 and 1992.
In addition, the former senior economist with the Central Bank of Barbados, said reducing the complexity of the then tax system and making the productive sectors more competitive were among the reasons for the introduction of VAT.
As part of his advice to the Bahamians, Dalrymple recommended at least a two-year lead time for implementation that would allow for a strong public relations campaign, a good tax payer education for the large tax payers and for the introduction of a good information technology system.
Describing the VAT as a ﾓregressive taxﾒ, the experienced economist said however, the negative effects can be minimised. Furthermore, he warned that sharing experiences was key for countries looking to introduce the tax as doing this would prevent the repetition of past mistakes.
Outlining the Barbadosﾴ experience with a 15 per cent VAT, the economist told the audience that included senior members of The Bahamas government and top corporate executives, that as was the case with Barbados, the introduction of VAT would require a comprehensive public education programme utilising all forms of media.
Explaining some of the challenges that arise from the implementation of VAT, Dalrymple said they included issues of administration, such as proper collection procedures and an efficient refund process.
In addition, he said Government would need to safeguard against exploitation by businesses who might introduce excessive mark-ups and blame them on the implementation of VAT.
Providing an analysis of the post-VAT experience, Dalrymple said Barbados was able to gain over $100 million in revenue from the tax despite a predicted shortfall of $25 million during the introductory year.
And while there were also some increases in goods and services, he said there had also been a significant reduction in cost of major consumer durables such as televisions, refrigerators and stoves.
Dalrymple, along with economist and now deputy governor of the Central Bank of Barbados, Carlos Holder; independent consultant Lindsay Holder and the late John King, a former senior economist with the IMF formed the study team which advised the Barbados Government on the introduction of VAT.
by Geralyn Edward, The Nation News
