Dear Editor,

VAT will eliminate the taxes on business income and shift them 100 percent to the consumer. This violates a basic tenet of fairness: He who earns it should pay. Although the name of this tax suggests that incremental increases in the price of goods/services are taxed where thy are earned, in fact, none of this tax is paid by the entity earning the income. All of the tax is passed through to the customer.

VAT will amount to a 15 percent tax on lower-level earners who have to spend all of their income to survive.

VAT will extend and perpetuate the regressive tax system in The Bahamas, as it includes no provision to tax based on the ability to pay.

The existing business licence tax already captures and taxes 75 percent of the GDP of The Bahamas, including activities in goods, professional services, petroleum, domestic financial services, real estate, construction and tourism.

The costs to implement, administer and enforce a complicated system like VAT will be both disruptive and prohibitive. An army of public employees will be necessary to oversee, manage and police the system, adding further costs to the public sector.

VAT will compound the taxation on consumers by requiring them to pay taxes on taxes, thereby allowing the government to double-dip and triple-dip. This includes real property taxes, import taxes and social taxes. Because there is no deduction for taxes already paid and included in the retail price of goods/services, when the final consumer pays VAT, he will pay an additional 15 percent on taxes which have already been paid to the government.

VAT does not provide relief to businesses (and therefore, consumers) for bad debts incurred by commercial enterprises. The effect is to increase the price to the consumer, while the government benefits by receiving a tax on both the bad debt (at the time of the original sale) and on price increases implemented by businesses to compensate for bad debts.

VAT taxes the purchaser of goods/services on retail prices instead of cost. This includes the profit of the seller, which further inflates the tax at each stage of the commercial chain.

Business licence tax is already in place, and that system can be modified to produce the results required to run the government, which must be limited to a reasonable proportion of GDP. In addition, the problems with calculating the "cost of goods sold", deductions for general and administrative expenses, treatment of bad debts and allocation of taxation between the consumer and the business can all be fixed without the massive dislocations that VAT will cause.

VAT, just like customs duties, encourages consumption and not business formation and development. Because business expenditure is taxed indiscriminately, there is no relief available for building improvements, personnel development, equipment upgrades, charitable contributions or business promotion. While it acknowledged that modifications to the tax system are desirable, this shotgun approach to taxation does not encourage the development of the Bahamian economy and is therefore the wrong answer for us.

- Shayne Davis

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