By Youri Kemp
Caribbean News Now associate editor
NASSAU, Bahamas — The Bahamas Budget debate for the 2018/2019 fiscal year was opened in the House of Parliament on Wednesday by Peter Turnquest, minister for finance and deputy prime minister.
The most important item taken from the budget communication laid out by Turnquest indicated an increase in value added tax (VAT) from 7.5 percent to 12 percent.
Additionally, while VAT will be increased across the board, certain items will be exempt:
1. All breadbasket items except for sugar, with such items comprising: butter, mayonnaise, corned beef, baby formula, baby cereal, mustard, soaps, soups, broths and other assortments of small food and personal care items;
2. VAT exemptions on medicines;
3. Residential property insurance will be exempt from VAT; and
4. Residential electricity bills at or under $100 and water bills at or under $50 will also be exempt from VAT.
Along with a general rate increase in VAT in addition to certain waivers and exemptions, Turnquest also highlighted several other exemptions and waivers to coincide and offset the VAT increase. For example:
1. An increase in the customs duty personal travel exemption from $300 to $500 per person;
2. VAT zero-rating of fund-raising activities held by charitable organizations;
3. An assortment of concessions in respect of real property tax, customs duties, excise duties, business licence fees and stamp tax in favour of designated economic empowerment zones, beginning with the inner cities;
4. A waiver of duty on clothing and shoe imports upon application by importers and retailers of same.
5. Duty-free entry for goods for use in the commercial printing industry, as well as for processing and garment manufacturing equipment without the need to apply for specific concessions as before;
6. Extending for one year both the City of Nassau Revitalization Act and the Family Island Development Encouragement Act;
7. Extending for five years the first-time homeowners stamp tax exemption;
8. Extending for two years the duty exemption on materials used for the renovation, repair and upgrade of dilapidated buildings;
9. The elimination of duties on a number of food products, including: whole salmon; frozen fish fillets; bread spreads; potato products; tofu; and prepared and preserved tomatoes;
10. The elimination of duties on solar kits upon application to the ministry of finance to supplement the already existing duty free exemption on solar panels;
11. A reduction of duties on floor tiles and fabric softener;
12. The extension of the 0.75 percent business license fee rate, currently applicable to hotels with turnover over $400 million, to all hotels with ten rooms;
13. An extension of the duty exemption to church buses eight years old or less from the current limitation that limits the concession to buses that are three years old or less;
14. Providing an exemption from business licence fees for all schools that are registered with the ministry of education; and
15. An elimination of the duty on airplanes and helicopters.
Turnquest stated that these measures are in part to coincide with the need for The Bahamas to have accession to the World Trade Organisation (WTO). The Bahamas is the only country in the Caribbean except for Cuba that is not a member of the WTO. In so doing, the increase in VAT with a simultaneous lowering of customs duties and other exemptions were at the focal point of the policy decision making for this budget year for a target date for WTO accession in 2019.
Turnquest also added that The Bahamas is one of the least taxed jurisdictions in the Caribbean, having only a 16.1 percent tax to GDP ratio last year, below the Caribbean average of 20 percent.
However, in a recent study by the Organisation for Economic Cooperation and Development (OECD) in conjunction with the Inter-American Development Bank, shows that The Bahamas, up to 2016, has a tax to GDP ratio of 22.4 percent, with the Latin-American/Caribbean (LAC) average being 22.7 percent.
VAT was first introduced in The Bahamas in 2015, with the IDB/OECD study pointing to significant improvements in tax-to-GDP performance between 2015-2016, attributed to the introduction of VAT, which saw The Bahamas raise the percentage by some 4.7 percent to 22.4 percent, just below the LAC average, with the introduction of VAT being seen as the most significant indicator in tax-take increase in the LAC region between 1980 to 2002.
The 2018/2019 Budget debate is set to continue for the next several weeks, moving up to the beginning of the next budget year starting on July 1, 2018.