Dear Editor,
A VAT (value-added tax) is a form of taxation that is levied on the "value added" to goods and services as they pass through each stage of the production process. Typically businesses collect the VAT on behalf of the government and pass the cost on to consumers. Based on historical evidence and economic research, it is clear that the implementation of VAT has many adverse consequences in addition to its benefits for governments.
"It is thought that a reform to a VAT system in The Bahamas could result in more than $100 million in extra revenue for the government - with no increases in net tax rates," Ryan Pinder, member of Parliament for Elizabeth, was quoted as saying. Pinder also noted that the International Monetary Fund, Moody's and Standard & Poor's, the Wall Street credit rating agencies, have all urged The Bahamas to implement a VAT.
Globally, over 140 countries employ VAT. Closer to home, Haiti, Jamaica, Barbados, Trinidad and Tobago and others currently use VAT.
VAT expands the cost of government. Additionally, countries with VAT have a much heavier total tax burden than those without VAT. Before the creation of VAT, the burden of taxation in Europe was not that much larger than it was in the United States. However, since the late 1960s when countries in Europe began to adopt VAT, Europe's overall tax burden has increased by about 50 percent. The Bahamas government already had a tax system in place (customs duty) and should not be seeking to add an additional form of taxation. It requires setting up an entirely new agency and the cost can be prohibitive as in the case of Barbados, whose government had to borrow money just to set up the VAT system. If the government needs additional revenue, it can increase the rate of taxation already in force with no additional labor or capital being expended. Ultimately, the cost of the additional taxes will be passed on to Bahamians as local and foreign companies operating in The Bahamas seek additional revenue to offset this additional expense. The impact VAT would have on foreign direct investments is not known.
The Tax Policy division of the U.S. Chamber of Commerce published a 1986 study that examined tax and spending growth between 1965 and 1982. The study found that government spending grew 45 percent faster in VAT nations than in non-VAT countries and that, similarly, the tax burden grew nearly 34 percent faster in VAT countries. It should be noted that the United States has not implemented VAT.
A study from the Federal Reserve Bank of Dallas noted: "Growth in government stunts general economic growth. Increases in government spending or taxes lead to persistent decreases in the rate of job growth."
VAT expands the size of the government. Also it takes resources out of the productive sector of the economy and transfers them to the government. VAT can slow economic growth and undermine job creation.
According to a 1988 study by Stotler Economics, a Chicago-based economic research firm, a VAT of only three percent would, by just the fifth year, reduce the typical family's income by $1,000 and destroy 2.1 million jobs (in the United States). The relatively weak performance of many European economies can be attributed, at least in part, to VAT.
No nation has ever implemented a VAT and eliminated other forms of taxation. VAT always has been imposed in addition to existing taxes. Additionally, the administrative cost of VAT is always placed on the shoulders of the people through a higher cost of living.
VAT would generate additional revenue for the government, but at what cost and where will this extra money come from? I fail to see how new taxes would attract more foreign investors or ultimately result in a lower cost of living now or in the future. I believe it goes without question that funds available in the Bahamas treasury are limited and the government needs additional revenue immediately. As the cost of living rises, households and local companies have had to make adjustments and learn to operate "within their means". Governments should not be exceptions.
There are many workable solutions to the national debt problem. I would like to suggest one. According to Byran Woodside, former minister of state for lands and local government, The Bahamas government owns 2,518,000 acres of Crown land - i.e., 73 percent of the land mass of The Bahamas. This consists of agricultural, commercial, residential, as well as beachfront properties. What is the purpose of this massive landholding while the public treasury remains bare and the government continues to borrow money every year, pushing the nation closer to defaulting on its obligations?
At a conservative average rate of $20,000 per acre, this 2,518,000 acres of Crown land is worth $50.3 billion. The Bahamas government is not broke. Indeed the Bahamas government is very wealthy. My suggestion is that the government sells 20 percent of its landholding (maintaining a 53 percent stake), collecting approximately $10 billion. With these funds the government can pay off all its current debt, reduce the tax burden on Bahamians and maintain a cash reserve of $5 billion in local banks.
Of course, this is not as simple as it sounds and would not happen overnight. But with time and careful planning it can be done. It would also dispel the notion that our burdening debt problem is insurmountable as we have been led to believe.
- Cornelius McKinney
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