Some Thoughts from Tradewinds
As the Government moves closer to issuing its final VAT proposal, many false and even misleading statements will continue to be forth coming. Many such accusations will be cheap shots, off the cuff type comments and have no foundation in economic fact or realty. Recently when the Nassau Institute issued its in depth study on VAT, Prime Minister Perry Christie was quick to say that it was based on "inaccuracies" and that critics of VAT "were distorting the truth".. What he doesn't seem understand, these well meaning critics are not making false campaign promises as there specific positions and statements are based on verifiable economic facts and the historical failure of VAT policies in general. As I have often pointed out, there are really no such things as lies in our Bahamas, only the truth just keeps changing. It is now time to stop playing political games and start telling the truth about VAT.
The Government of The Bahamas has been busy taking the advise from technical advisers with the International Monetary Fund (IMF) to implement a VAT regime starting the July 1, 2014. Their advice is being treated like "Gospel" by Government despite exaggerations and misrepresentations of fact. Yet this is nothing new for the IMF whose sense of superiority and at times arrogance makes government "inferiors" feel that IMF pronouncements and directives become almost sacred in thought.
Recently, while in Nassau, a high ranking Vice President and Department head from the IMF went to great lengths to cite and explain that VAT implementation was a most efficient administrative process. As headlined in the September 19th Tribune, "VAT: Will be Efficient", went the rather lengthy and repetitive plea from the IMF official. His underlying statements were repeated at Town Hall Forums and other presentations by the government spokespersons who, using two different presentation slides, boasted to their audiences that VAT promotes "economic efficiency" and that VAT "administration was highly efficient". Were these pronouncements based on actual facts, or only what the IMF expert and government spokespersons envisioned? Most of us know have long known that visions are NOT a basis for factual reference.
What the IMF expert and the two government spokespersons did not know was that a stunning announcement by the European Union (EU) had recently been issued. It was announced in an EU press release that in 2011, the EU had a VAT leakage of EUR 193 billion (US $ 262 billion) in non-compliance and non-collected revenue shortfalls. In other words, every four years the EU countries as a whole lose over a trillion dollars in desperately needed revenues. Without mixing words, this disclosure by the EU does not represent what has been called VAT economic and administratively efficient. It only highlights the acute complexities and difficulties in carrying out a VAT system where corruption and administrative incompetence is known to prevail.
In a country like The Bahamas, where government inefficiency and incompetence have become the order of the day, where few things in the country ever get done in a timely and efficient manner, (think trash collection, traffic lights, potholes in our roads), how can the government ever expect to successfully administer a complex tax system like VAT? How can it hope to prevent the inevitable establishment of "underground markets" and increased smuggling that will occur? Even if they could, the administrative costs of managing and overseeing VAT, like every other government program or endeavor, will be far more costly than originally estimated.
If our history is a guide, VAT will be a failure and very detrimental to the economy of The Bahamas. Time to check first if there is water in the pool, before we dive in headfirst. Other solutions and alternatives must be forth coming from government as VAT will be the failing that it has always proven to be, a Very Awful Tax.
