A Grand Bahama Chamber of Commerce (GBCC) senior executive has described government's plans to postpone reducing the import duty across the board "a bit schizophrenic" and questioned whether it represents "responsible fiscal management."
Kevin Seymour, a former Grand Bahama-based partner for PricewaterhouseCoopers and present chairman of the Ethics and Legislative Committee of the GBCC, said that the move may also leave international credit rating agencies "shaking their heads".
"I understand that the government was under tremendous pressure to have the rate lowered, and some were suggesting they don't go the route of VAT. Now they have a situation where they lowered the rate, but what is clear to me and most people who understand these things is that at best we'll be benefiting from a 7.5 percent rate for no more than six months before that is dramatically changed; I don't know that that is responsible fiscal management.
"They will have to change the rate in order to proceed with plans for accession to the World Trade Organization (WTO) and to me they should've done both things at the same time, because the international agencies are watching us and when you have a situation where you simply did nothing with respect to accession plans to the WTO and you know you'll have to do that later on anyway, it seems a bit schizophrenic. That to me doesn't appear to be a very well-thought-out strategy."
In the budget communication, Prime Minister Perry Christie said the government anticipates a January 1, 2015 implementation of VAT at 7.5 percent with no "wide-scale duty reductions" and fewer exemptions. However, he pointed out that "more general tariff rebalancing" remains a requirement that will need to be implemented once The Bahamas concludes the ongoing WTO negotiations.
Last year, Minister of Financial Services Ryan Pinder had initially indicated that the government was targeting a December 2014 accession to the WTO. He later said that the process could extend into 2015.
With accession would come wide-scale reductions in duty rates, given that WTO membership requires the lowering of such duty rates, which are considered barriers to international trade. It is for this reason that Seymour and others - including government officials - have suggested an increase in the rate of VAT might be needed in order to compensate for the revenue lost when this reduction occurs.
In an interview with Guardian Business earlier this week, Coalition for Responsible Taxation Co-chair Gowon Bowe said that in a meeting with the coalition, Christie said that WTO accession could be delayed depending on the performance of the new tax system, which the government intends to implement in January 2015.
"I think Christie said he's not going to rush the WTO accession until he sees how the tax inflows work. He said it might get pushed back six months to see how the government can withstand a duty reduction," said Bowe.
Asked to respond to Bowe's comment in this regard this week, Pinder said he "does not know why the coalition would say that" and told Guardian Business that the accession process "continues as it always has".
As to whether this means a mid-2015 accession, Pinder did not comment further.
Seymour said: "If we have to reduce our rates to join the WTO and he is still sticking to the timetable he's given in the past, then it means the second half of 2015 will be quite tumultuous, because those rates will have to go down and the VAT rates will go up and we will have calamity.
"I can't see how you have a government with coordinated policies when you have one minister saying we are going full throttle to join the WTO and another saying we are not going to reduce rates."
"It also raises the question: What was the motivation to accede to the WTO? Certainly there were some benefits that they outlined with respect to our exporters that we would have some products placed in jeopardy."
Speaking on Guardian Talk Radio yesterday morning, Minister of State for Finance Michael Halkitis said the government will undertake "selective" reductions in import duty when VAT is implemented.
"We understand; of course people are concerned, the cost of living is high - they are concerned about anything that would increase that, and we are too, and we are going to try to mitigate that.

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