The Economic Consequences of the Value-Added Tax for The Bahamas
by David Godsell for The Nassau Institute
Executive Summary
As described by the White Paper released by the Bahamian government in February 2013, the Bahamas is poised to adopt value-added taxes (VAT) in July 2014.
In this report we discuss the economic consequences of VAT adoption and elaborate on the welfare loss that can be anticipated for consumers, labourers, employers and the government. Consumers can expect a one-time increase in price levels and a loss of purchasing power.
Labourers can expect a decline in real wages which will in turn lead to a decline in the labour supply. Businesses and employers with VAT-based sales can expect reduced demand for goods and services, which will in turn reduce their demand for labour.
Under extraordinarily conservative estimates biasing towards heightened government revenues, we forecast VAT adoption will lead to a $165 million decline in government revenues.
Simultaneously, we estimate VAT adoption will burden the private sector with $103 million in annually recurring compliance costs and an average of $4,300 in compliance start-up costs for each VAT registrant.
The report concludes by pointing to failed VAT adoptions in countries similar to the Bahamas and by highlighting contemporary efforts to reduce budget deficits through reductions in government spending.
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Congratulations is due to the Nassau Institute for its landmark study on the impact of VAT upon the Bahamian economy.. Its analysis and findings reinforce the outcry of numerous commentaries on WeblogBahamas over the last several months.. The economic consequences of this indefensible tax is a recipe for economic self-destruction and disaster..
Now is the time for the Chamber of Commerce and all other professional and business associations to voice their opposition and contempt for our irresponsible government shoving this tax down the throats of the Bahamian people.. They must stand up and be counted as the economic survival of our nation is at stake.. They must demand that government undertake prudent economic policies to stimulate domestic investment, reduce the sheer size of our bloated government and cut the red tape and unnecessary paper work that hampers private sector growth and entrepreneurship.. The Bahamian people want a responsible government and not one that will drive the masses deeper into the pit of dependence and poverty..
Now is time for a “New Direction” for the Bahamian economy and to rid our nation of authoritarian control over the Bahamian people.. The crippling effects of VAT must be stopped and abolished if our economy is to ever prosper again.. The Nassau Institute has given us the evidence.. Now is the time to demand financial prudence and to demand that government act in the National Interest and to preserve what it means to be Bahamian..
Its time for government to be a solution and not the problem..
Just for the record, in the EU, Greece, Spain, Italy, Portugal and Ireland all have VAT rates in excess of 20 percent.. These once stable nations are the basket case economies of Europe and are on the verge of economic collapse.. They socialist systems are beyond repair as not even the IMF or austerity programs, both voluntary and involuntary, have worked.. Do we want this for our precious Bahamas?? Do we want massive inflation, greater unemployment and debt default that characterizes there basket case economies?? Again, the answer is clearly no..
On my, how could we forget Cypress and the government’s forced Nationalization of bank deposits.. Iceland too, where aggressive borrowing forced their largest banks into government Nationalization.. Perhaps the IMF should recommend raising the VAT to 50 percent to bailout these imprudent governments that have made political promises they could never keep while spending their way to economic failure.. If this sounds familiar, you better be frightened for your country..
Again we must ask our financial experts can they name a single country where VAT has not resulted in increased inflation, higher unemployment and reduced rates of capital formation?? These are not “inaccuracies” as had been falsely charged, but facts based on factual analysis and verified by historical evidence.. These maybe desperate times but are times for sound and objective thinking.. VAT is a significant part of the problem and not the solution.. It’s certainly not a viable solution for our Bahamas..